Additional RM60k Per Year in EPF for Retirement?

Additional RM60k Per Year in EPF for Retirement?

The Employees Provident Fund (EPF) revised the Basic Savings from RM196,800 to RM228,000 on 1 January 2017. The amount was set as the minimum EPF savings target for members when they reach age 55.

The Basic Savings, however, was expected to be sufficient to support basic retirement needs for 20 years (from age 55 to 75) only. This was benchmarked against the minimum pension for public sector employees, which was raised from RM820 to RM950 per month from age 55 to 75. Again, this is only for basic needs, what about the rising medical costs? And our life expectancy is now forecasted to 82 years from 75 years.

 

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According to iMoney, the reality is most Malaysians are still struggling. About 65% of all retirees can only afford to spend RM208 a month, 70% of retirees spend all their EPF savings within 10 years after retiring, and 26% of EPF members have no savings apart from EPF!

If you intend to maintain your current lifestyle, you need 70% of your last drawn salary in retirement, as suggested by iMoney. For example, if your last drawn salary is RM5,000, you will need RM3,500 per month during retirement.

B K Sidhu from The Star (24 May 2021) suggested that one way to boost your retirement savings is by topping up RM60,000 a year into your EPF savings, on top of the monthly statutory requirement. Combined with the statutory monthly deductions of over 30 years, dividends and compounding interest, will give you RM2 million at the point of retirement. You may expect RM10,000 monthly for spending (you may also opt to withdraw only the dividends, which could be around RM8,000 per month at 5% pay-out). Of course, this does not mean you have to live a frugal life now to save that RM60,000. It all depends on your plan, how much you will need to maximise on returns and whether you have the resources to save RM5000 per month or enjoy a generous bonus from your employer.

Financial planning for retirement should be done early unless you are from the public sector where a pension scheme exists. Save your money in EPF if you are not a risk taker. EPF’s dividend pay-out in 2020 was at 5.20%. If you are looking for a higher return, search for other instruments. But of course, higher returns always carry higher risk. So, invest as early as you can to enjoy the compounding effect!

 

 

Reference:

1.     B K Sidhu, The RM60k EPF savings top-up benefit, StarBiz, 24 May 2021

2.     Can You Support Yourself In Retirement? iMoney