RM600,000 doesn’t cut it for retirement, say economists

Desmond Davidson

Malaysian Human Rights Commissioner Madeline Berma says one probably needs about RM500,000 in retirement savings to live comfortably in a rural or interior area. – The Malaysian Insight file pic, January 30, 2023.

ECONOMISTS have dismissed a recent Employees’ Provident Fund (EPF) assessment that pensioners need between RM500,000 and RM600,000 in the bank to live comfortably after retirement.

They said the amount is clearly insufficient to live comfortably, especially in urban areas.

They also said that with the rising cost of living, many are only left with the choice of working beyond their retirement age.

“It’s insufficient to live a comfortable life in the cities,” economist and Malaysian Human Rights Commissioner Madeline Berma told The Malaysian Insight when asked to comment on recent news reports of the EPF assessment.

Berma, who is also an honorary fellow at Institut Masa Depan Malaysia, the amount would most probably be sufficient for an average Malaysian to live a fairly comfortable life in rural and interior areas of the country.

The EPF assessment said a retiree would need at least RM500,000 in savings to live comfortably outside the Klang Valley, while RM600,000 is needed to live in the Klang Valley.

Berma said in Malaysia, there are four location categories – cities, towns, rural areas, and interior areas.

She said by 2022, 19 areas in the country were legally termed cities, among them, two in Sarawak (Kuching and Miri) and one in Sabah (Kota Kinabalu).

The Sarawak-born economist said an important point is a Statistics Department finding that showed the average life expectancy of Malaysians is 73.4 years.

She said with the mandatory retirement age now at 60, many retirees live for about 13 years more.

That means with their RM600,000, the retiree would have to survive on RM3,846.15 per month, she said.

“According to Belanjawanku, a senior couple would need RM3,170 if they live in the Klang Valley, RM2,870 in Kota Kinabalu, and RM2,740 in Kuching.

“To live comfortably means to have enough money to meet basic needs, to live a purposeful and meaningful life, and to be involved in community activities and gatherings of families and friends.”

She said food, healthcare, housing, utility bills, transport, ad-hoc expenses, social participation, discretionary expenses and emergency funds make up a large chunk of a retiree’s expenses.

Malaysian Human Rights Commissioner Madeline Berma says it is advisable not to withdraw from your EPF accounts unless absolutely necessary so your retirement fund remains undisturbed. – The Malaysian Insight file pic, January 30, 2023.

Forced to continue working

Joseph Ramanair of Universiti Malaysia Sarawak said the EPF assessment meant many Malaysians, including him, may be forced to continue working well after retirement.

“We have no choice,” he said.

He said the cost of living is already escalating.

“Prices of food, medical care, transport and many other essentials are rising.”

Ramanair, in response to EPF’s assessment that a retiree would need between RM900,000 and RM1 million in 20 to 30 years to retire comfortably, said he probably would not even have RM900,000 in his bank when he retires in nine years.

“In 10 years’ time, RM600,000 would probably mean nothing. The value of our ringgit could have dropped very low.”

He asked how could Malaysians survive if the growing prices of goods are not controlled.

On the EPF report’s projection that only 2.6% of the 13.1 million EPF contributors would have anything close to RM600,000 by retirement, Berma said the best advice she has is not to withdraw from your EPF accounts unless absolutely necessary.

“Let the money grow.”

She said it is best for one to diversify their savings, like placing a portion of it in fixed deposits, and to diversify investment portfolios, like into mutual funds or unit trust.

“Start saving in EPF at a very early age,” she said, if one plans to save for their children.

Berma said Malaysians must brush up on their financial literacy, which must be facilitated by the government.

She said the government should provide courses and organise major events to enhance the awareness of consumers on key financial issues and cash management solutions in the market with the aim to “encourage more Malaysians to save and earn”.

Berma said because most Malaysians are not financially literate, she expects many will face financial challenges this year that will leave them vulnerable to financial shocks due to the economic slowdown.

She said Malaysians have a penchant for choosing short-term monetary relief over long-term financial stability, like withdrawing from their EPF accounts to address their current financial challenges. – January 30, 2023.

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