Your EPF Savings Fulfils Less Than Half The Retirement Fund You Need

Your EPF Savings Fulfils Less Than Half The Retirement Fund You Need

Affin Hwang Capital

A quarter of Malaysians say saving enough for a comfortable retirement is the most difficult feat, if not mission impossible, and it is one of the biggest financial concerns among Malaysians.

The concern is not unfounded. A separate survey found a whopping 91% of Malaysians above 45 years old unable to retire in the next five years due to lack of retirement savings.

Saving for retirement is viewed as the most difficult to achieve because not many can accurately predict the future. The unknown of retirement makes it hard for most people to plan adequately for it. You won’t know how long you’re going to live or what sort of medical expenses might come your way in your golden years.

However, the key to retirement planning is not about knowing exactly what will happen in the future, but coming up with educated estimation of how much you need and how to get it before your last day in the workforce.

The more accurate way of deriving a figure for your retirement is to list down all your current expenses, and projected expenses in your retirement. However, instead of “how much do I need to save?” a question you should ask yourself is, “what income will I need during retirement?”

Everyone has different spending pattern and lifestyle, hence there is no one size fits all figure for retirement fund. To estimate your retirement income that you should be replacing, ask yourself, “what percentage of your pre-retirement income is needed to fund your retirement years?”

A general rule of thumb is to replace 80% of the last drawn income in retirement. If your last drawn income before retirement is RM7,000, you should have a monthly retirement income of RM5,600, for at least 15 to 20 years. You are looking at a total retirement fund of at least RM1 million!

Will your Employees Provident Fund (EPF) savings be able to save up that amount by the time retirement come around?

Based on the screenshot of the EPF Savings Calculator above, the answer is a resounding NO! Your total retirement savings in EPF will only reach RM238,800 by the time you reach 55 years old. That’s about 24% of your target retirement fund of RM1 million.

So, what can you do to boost your retirement savings?

1. Save more, but how much more?

We’ve established the fact that it is financially unwise to solely rely on our EPF savings for our retirement, especially if we want to maintain the same standard of living. But how do we achieve that, and how much do we need?

The Private Pension Administrator (PPA) recommends an individual below the age of 25 to save 5% of their monthly salary (not including EPF contributions), a person between 25 and 30 years old to save 7.5%, while an individual 30 years old and above to put away at least 10% of their savings for retirement.

Of course, how much you need to contribute to save up “enough” by the time you retire really depends on what kind of retirement you have in mind. If you are planning to have an additional RM1 million (not inclusive of EPF) by the time you hit 60 years old, you need to start fast:

Target retirement savings by age 60RM1 million
Starting age
Regular monthly savings (%)
Starting age at 20
Starting age at 25
Starting age at 30
Starting age at 35
Starting age at 40
Starting age at 45
More than 30%
^ Assuming average salary increment of 5% per annum.
* Assuming average rate of returns of 6% per annum.


The later you start contributing towards your golden years, the more you will have to save to achieve your goal. If you are starting at 30 years old, and you are earning about RM4,000 a month, you will have to put aside RM564 every month for PRS in order to achieve RM1 million by the time you retire at 60 years old.

Therefore, every Ringgit compounded over a long period matters. To encourage the younger Malaysians to be more proactive with their retirement planning, the government announced the PRS Youth Incentive in 2013.

The PRS Youth Incentive will provide a one-off incentive of RM500 to be contributed to a PRS fund.

You will be eligible for this if you fulfil the following criteria:

  • You are a Malaysian.
  • You have an existing Private Pension Administrator (PPA) account or you are a new member.
  • You are between 20 and 30 years old (based on birthdate).
  • You have a minimum of RM1,000 gross contribution in a single year within a calendar year.
  • PRS Youth Incentive applicable between 2014 and 2018.

If you have fulfilled the above criteria, a RM500 will be contributed, under this scheme, to your PPA account to be invested in a PRS fund.

Why should you go for it?
The question should be, “why not?” If you are given RM500 cash reward, you would probably take it up without another thought. However, this incentive is even better than cash as it will grow over at least 30 years to an even bigger amount.

2. What if you don’t have extra cash to save?

There’s still something you can do to boost your retirement fund even if you have no money to get started right now.

The EPF Members’ Investment Scheme (EPF-MIS), is perfect if you don’t have a capital. Under the EPF members are allowed to withdraw a portion of their savings periodically to invest in approved unit trust funds.

You can withdraw not more than 20% of your total amount in excess of your Basic Savings in Account 1. Each withdrawal must not be less than RM1,000.

To qualify under this scheme, first you must ensure that your Total Savings is more than your Basic Savings. The Basic Savings amount depends on your age. For example, a 30-year-old should have a Basic Savings of RM27,000.

Here’s how much you can invest from your EPF savings in this example:

Total Savings in Account 1
Basic Savings (30 years old)
Total Excess
RM54,500 – RM27,000 = RM27,500
20% Allowed for Investment
RM27,500 x 20% = RM5,500

Based on the table above, you are allowed to withdraw RM5,500 to be invested in an EPF-approved fund of your choice.

Will this amount do much better invested elsewhere? Using Affin Hwang Select Opportunity Fund as an example, here’s how much returns you can potentially see:

Initial investment
Total units purchased (NAV: RM0.8943*)
RM5,500 / RM0.8943 = 6,150 units
Average annual dividend payout
(RM0.0243 per unit) for Year 1
6,150 x RM0.0243 = RM149.45
Returns for Year 1
(Average 14.2% p.a.)
6,150 x (RM0.8943 + 14.2%) = RM6,280.94
RM6,280.94 – RM5,500 = RM780.94
* Net Asset Value price as of February 29, 2016.


The above calculation is just for the dividend you get for the first year, while the returns is if you sell your units after one year of investment. However, if you continuously withdraw 20% of excess in your Account 1, and reinvest your dividend every year, you can see your money grow even faster by the time you reach retirement.


Why should you go for it?
Although putting your money in EPF if the lowest form of risk in terms of investment, it does have a ceiling to your investment. In 2015, EPF announced a dividend rate of 6.40%. However, if you invest in unit trust funds, there is a possibility of getting a higher returns than that.

Don’t leave it to chance

Being proactive with your retirement planning adds great value to your retirement, compared to those who are late to the party. Starting early, you have more rooms for mistakes, and the pinch you feel from the money put away for retirement is usually less painful than when you start at 40.

Find out what difference you could make to your retirement plan when you invest RM100 over different investment periods and potential rates of returns:

General Investment Calculator

Calculate the future value of your investment, with all interest and returns reinvested, over the investment period.

Monthly contribution (RM)

Targeted returns

Investment period



Knowing what you want and how you are going to get it are two things you need to consider when you are drawing up a retirement plan. With time on your side, your options are much greater than having just ten years to achieve a big dream.

By taking advantage of the existing facilities to make your retirement planning easier and more affordable, it would be foolish not to get started, as soon as possible.

Image from The Ring of Fire Network


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