CONTRIBUTORS cannot just rely on their Employees Provident Fund (EPF) savings for their financial needs in retirement, a financial management and planning expert said.

Wading into discussions on the recent EPF board disclosure that 97% of contributors aged 55 and below have not reached the ideal savings level of RM600,000 and are therefore unable to retire comfortably, particularly in big cities, Wong Chai Soon said Malaysians need to invest their money elsewhere, including going into business.

Wong said when the time comes for them to quit working, it would not be difficult to do so if they had invested their money elsewhere.

“Managing your money is not difficult. It just needs a process,” he told The Malaysian Insight.

He also said not all Malaysians have savings in EPF.

“I don’t. Does that mean I cannot retire?”

Wong said at the moment, there are no gains made with their EPF savings.

He said the dividend payout is now between 5% and 6%, which is at pace with the country’s inflation rate of 5%.

In pre-pandemic 2019, the EPF declared a 6.1% dividend for conventional savings and 5.65% dividend for shariah savings.

That, Wong said, again shows why contributors cannot rely on their EPF savings for their retirement.

“It’s just not ideal.”

He said the dividend payout is merely maintaining the purchasing power of their money, which could, over time, get smaller and smaller.

The key to financial independence on retirement lies in a person’s ability to manage his money and make the right investments, he added

“The key is for the person to have a strong concept of financial management and to know what money can be used now, later, and what can and cannot be used. 

“If they have no concept, the EPF money they are eligible to withdraw in full on reaching retirement age will be spent quickly.”

He said he has many friends who have spent all their EPF savings after withdrawing them in just a few months.

“Everyone needs to have a basic knowledge on investment to overcome the biggest problem of our lives: how to retire comfortably.

“It’s really important,” Wong said.

Inflation worries

Malaysian Financial Planning Council acting president Desmond Chong Kok Fei said inflation topped everyone’s concerns.

“Inflation has become one of the most distinctive features of the global economy in the post-Covid pandemic era.

“The money depreciates in value, making our purchasing power smaller and smaller,” the financial education programme instructor said. 

In sharing the three key considerations when planning for retirement, Chong said the first is to plan on deferring their retirement plan. 

“Those who had planned to retire at 55 might have to work another 10 years.”

The second, he said, is to take a cut in their monthly living expenses budget.

“For example, if they were used to living on RM3,000 a month, then they have to reduce that to RM2,000.”

Chong admitted that would be a difficult thing to do due to habits.

His third plan is similar to Wong’s – go into investment.

He said a major point to consider when making investments is “to at least beat the inflation rate”.

“So if the inflation rate is 4%, for a return on investment, the investment should therefore be more than 4%.”

On January 25, the EPF board said retirees in the Klang Valley and cities such as Kuala Lumpur, Kuching or Kota Kinabalu need to have at least RM600,000 in the bank to retire comfortably.

However, the board said that about 97% of contributing members aged 55 and below did not reach the ideal savings level of RM600,000 to retire comfortably in major cities.

“Only 2.6% or 350,000 members can meet the above ideal savings threshold.” – February 4, 2023.