Are EPF Savings Enough?

FOR most of us, unless we are civil servants or self-employed, our only source of retirement savings is our EPF account.

With life expectancy as high as 72 years for men and 76 for women, there is a lot of years left after we turn 55, and this begs the question whether the money we have with the EPF is sufficient to meet our post-retirement needs.

The question of adequacy of retirement funds comes to the fore when viewed against the fact that only 23 per cent of our wages earned during the average 30 years of our working life (11 per cent contribution by employees and 12 per cent by employers) goes to support our needs for the next 20 years after retirement.

When we factor in the high and escalating health and medical costs as we grow older, EPF savings alone are clearly not enough to cover all our post-retirement needs.

At best, the savings will be just enough to cover basic needs such as food and shelter.

The average savings of active EPF members at age 54 illustrates starkly the issue of fund adequacy.

At RM99,048, this amount, which is expected to fund retirees' living expenses for the rest of their lives, can only meet the cost of one or two major hospital visits!

To illustrate this simplistically, let us consider an example:

Joe needs RM1,000 for living expenses per month (an amount which is actually small by today's living standards).

He withdrew RM99,000 from the EPF when he retired at 55 years old. In 99 months or less than nine years, Joe would have depleted his entire EPF savings.

At this point, Joe is only 64 years old. He has many more good years ahead of him.

This simple calculation does not even take into account other "real" economic factors such as inflation and interest rates.

Based on the above example, we cannot but ask ourselves the following questions.

How much should we provide for old age? What should we do with the EPF savings to ensure that there is enough for the golden years? What are other savings options apart from the EPF?

A comfortable retirement depends largely on our personal lifestyle, standard of living and state of health.

In the Malaysian context, it also depends on the willingness or ability of our children to support us

For a start, we must recognise the importance of maintaining our EPF savings. We must adopt a disciplined attitude towards this important savings instrument.

There should not be any unnecessary pre-retirement withdrawals unless these are in line with our retirement plans such as withdrawals made for the purpose of purchasing a house for ourselves.

Unfortunately, most of us don't leave our savings intact -- making withdrawals the moment we are allowed to, despite having alternative source of financing.

Thus, our EPF savings gradually erode over the years -- forcing us to be dependant on our children and relatives and in some extreme cases, the Government, to support our "golden years".

This phenomenon, though hard to imagine, especially for the younger ones, is a reality we will see more often as Malaysians age.

Secondly, members who can afford should contribute as much as they can to their EPF accounts and not limit themselves to the statutory minimum.

After all, the money is merely set aside for one's retirement. The compounding effect of the increased contributions will result in substantial savings at age 55.

The process of contributing more is very simple. All one needs to do is to complete form KWSP 17A and submit it to the EPF. This is applicable to employers as well.

To address the question of what is the right balance for retirement, we need to start planning and evaluating our financial resources and health immediately. We have to take the responsibility to plan our retirement.

The EPF, after all, is only one of the many savings instruments available to us.

We must take cognizance of the fact that the EPF, though a very important retirement planning instrument, should only be one of the many pillars of social security.

We should also seek professional advice in investing our savings in other instruments such as insurance and unit trust, based on their risk and return profiles.

There are enough investment instruments in the market to cater to all types of investment needs.

Ultimately, if we abdicate our responsibilities and we don't make an effort to plan for our retirement, it is then impossible for us to expect a retirement that is not plagued by financial difficulties.

P/s : Anybody interested investing in unit trust, you can emel me with your contact no for further discussion... my emel: putri22@gmail.com... :)