Why You Should Take Your Retirement Savings Off Autopilot

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Why You Should Take Your Retirement Savings Off Autopilot

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Twenty years.

That’s essentially how long you can expect to spend in retirement if you retire at 60, according to data published by the Organisation for Economic Co-operation and Development (OECD).

The question is, can your retirement savings last that long?

For many Malaysians, the answer is probably ‘no’. Most leave their retirement planning on autopilot mode – that is, they don’t give it any thought and instead rely on their Employees’ Provident Fund (EPF) savings to fund their retirement.

However, two out of three EPF members aged 54 have less than RM50,000 saved. Alarmingly, half of EPF members over the age of 55 exhaust their savings within five years.

It’s not enough to save just with EPF

The general rule of thumb is that you’ll need 2/3 of your last drawn income to maintain the same standard of living you have pre-retirement. Meaning if you earn RM7,500 a month during your last year of work, you’ll need RM5,000 a month when you retire – otherwise, you’ll have to downsize your lifestyle. Alternately, EPF’s Belanjawanku expenditure guide estimates that an elderly couple needs RM3,090 a month for a “reasonable standard of living”.

If you happen to be a young adult today, how much would you need to retire?

Let’s take the example of Lisa. She’s a 22 year-old fresh graduate who earns a RM2,500 monthly salary. She’d like to retire at 60, and have her retirement fund last until 80.

According to Private Pension Administrator Malaysia’s (PPA) retirement calculator, if Lisa has an annual 3% salary increment until the age of retirement, she would accumulate RM974,641 in EPF savings by the age of 60.

However, she would need RM1,198,599 to retire on 2/3 of her last drawn salary (if this sounds like a lot of money to you, just remember that this is 38 years into the future – assuming a 3% annual inflation, this is equivalent to RM389,815 today).

Lisa’s EPF savings may not be able to sustain her 20 years of retirement. Along the way, if she uses her EPF savings to pay for housing, medical bills or education, she would have an even greater shortfall.

This goes to show that relying on EPF alone is not enough – you may need to take your retirement savings off autopilot.

Boost your chances of retiring comfortably with EPF i-Invest

Generally, there are two ways to boost your chances of a comfortable retirement – either save more, or make your savings work harder.

i-Invest, EPF’s new online investment platform, can help you with the latter.

This platform, which launched in August, allows you to enhance your retirement savings by placing part of your EPF balances in approved unit trust funds. This gives you the opportunity to potentially grow your retirement portfolio at a greater rate.

How do you choose which unit trust funds to invest in?

Even though investing your EPF savings can potentially grow your portfolio at a greater rate, these returns are not guaranteed. Unit trust funds can even deliver lower returns than EPF.

That’s why it’s important to evaluate each unit trust fund before you invest and choose funds that are performing well.

One way of evaluating a fund is by looking as its annualised return. This refers to the fund’s average return per year, over a period of time. You can find this metric by looking through a Fund Management Institution (FMI)’s website, or through independent financial sites.

For example, here are the annualised returns of some of Principal’s top-performing funds:

5-year annualised return
(23/10/2014 to 23/10/2019)
Principal Islamic Asia Pacific Dynamic Equity7.28%
CIMB-Principal Asia Pacific Dynamic Income MYR9.66%
CIMB-Principal Asian Equity8.70%
CIMB-Principal Global Titans MYR11.43%
CIMB-Principal Greater China Equity13.72%
Source: Lipper Investment Management; annualised returns based on reinvested dividends

These funds have outperformed EPF’s dividends, which have ranged from 5.70% to 6.90% in the past five years.

Principal’s funds also won two awards for being the ‘best performing fund’ in the following categories:

FundCategoryConferred by
CIMB-Principal Global Titans FundEquity Global - Malaysia Pension, 5 yearsLipper Fund Awards from Refinitiv 2019
CIMB-Principal Equity Income FundEquity Asia Pacific ex Japan - Malaysia Pension, 10 years

Of course, while past returns is not a guarantee of future results, it can be a helpful indicator to evaluate how well a fund is performing.

Why choose Principal?

Principal Asset Management Berhad (formerly known as CIMB-Principal Asset Management Berhad) has been recognised as one of ASEAN’s top management houses. Principal has received awards for Best Asset Management House in ASEAN by Asia Asset Management (2019) and Best Wealth Manager, Malaysia by Asset Asian Awards (2018).

Put your portfolio into overdrive by eliminating sales charges

When investing in unit trust funds, you’ll also need to look out for sales charges – otherwise, they can eat into your portfolio returns over time!

For a limited time, you’ll incur 0% sales charges when you invest in Principal’s unit trust funds.

Here’s an illustration of how sales charges can affect your portfolio growth:

Sales charge0%0.5%3%5%
Initial capitalRM5,000RM5,000RM5,000RM5,000
Year 1RM5,400RM5,373RM5,238RM5,130
Year 10RM89,886RM89,436RM87,189RM85,391
Year 20RM272,284RM270,922RM264,115RM258,670
Year 30RM666,068RM662,737RM646,086RM632,764
Effect of fees after 30 years*RM0RM3,331RM19,982RM33,304
*Assuming an initial capital of RM5,000, an annual contribution of RM5,000 and an annual return rate of 8%

A small sales charge like 3% might not seem like a lot of money, but it can cost you tens of thousands of ringgit over decades!

How to get started

Investing with Principal through EPF i-Invest is easy. Just follow these five simple steps:

  1. Register and activate i-Akaun (this is where you can access your EPF account online)

    On buy screen, select Principal & your choice of fund(s)

  • Get a temporary user ID and password from your nearest EPF office/kiosk
  • Head to the ‘Member Login’ section on EPF’s website and use the temporary User ID and password sent via SMS to activate
  1. Login to i-Akaun and select ‘Investment’ on the top menu bar
  2. On buy screen, select Principal & your choice of fund(s)
  3. Select Principal as your preferred FMI (Fund Management Institution)
  4. Confirm your transaction
  5. From 1 November to 12 December 2019, you’ll get rewards in the form of Touch ‘n Go eWallet reloads when you use your EPF savings to invest in Principal unit trust funds and fill up this form.

Taking your retirement savings off autopilot involves certain risks. However, if you’re ready to take control of your nest egg, investing your EPF savings could potentially net you higher returns, helping you reach your retirement goals.

Find out more about how you can maximise your EPF savings with Principal.

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