This Week’s Top Headlines

i) The Employees Provident Fund (EPF) has set its basic savings target to RM240,000 for members reaching the age of 55. The figure, which was increased from RM228,000 in 2019 allows retirees to spend RM1,000 per month for the next 20 years. But is this amount even enough to retire?

ii) Highlighting the alarmingly low EPF savings of Malaysians and the importance of planning early for retirement - only 18.4% of members have met the basic savings by age as of May 2023.

Scroll down to read the details.

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In one of my most recent issues, I wrote about how to realistically save and invest your way to RM100,000 by 35.

For fresh graduates who have entered the workforce at the age of 24 with a salary of RM2,400, you would need to set aside roughly RM588 every month into an asset that compounds 5% annually.

The monthly contribution required will be significantly higher as we age, because the power of compounding works with time, giving those who start earlier an upper hand.

Read the full issue here.

But why is RM100,000 so important?

Aside from being a satisfying figure itself, having RM100,000 by 35 can greatly improve your personal finances and pave the way for a comfortable retirement.

In 2019, the Employees Provident Fund (EPF) announced that the basic savings target has been increased from RM228,000 to RM240,000 for members reaching the age of 55.

This increased amount is deemed adequate to cover retirees' essential needs for the next 20 years and is in line with Malaysia's life expectancy. When distributed annually, it provides retirees with RM1,000 per month to support their expenses.

But is RM1,000 per month enough to retire, really?

The inflation calculator from the Department of Statistics Malaysia (DOSM) revealed that a basket of goods that cost RM100 in 2020 rose to RM106.37 in 2023.

The same basket spiked to RM161.47 from January 2000, representing a 61% increase.

While Bank Negara Malaysia’s recommended living wage is RM2,700 per month, Malaysia’s median salary stood at RM2,250 per month in 2021.

In other words, half of the population earned less than RM2,250, while the other half earned more than RM2,250.

According to EPF’s Belanjawanku Expenditure Guide, a single person using public transport requires RM1,930 per month to survive in the Klang Valley.

The expenses jump by 35% to RM2,600 per month for individuals who own a car.

Senior couples, meanwhile, require at least RM3,210 per month (or RM1,605 per person) to afford their basic necessities.

For retirees who are single, this figure rises to RM2,520 per month, with the majority of expenses coming from food and housing.

With EPF’s basic savings target of RM240,000, retirees will have only RM1,000/month for 20 years, which isn’t near enough unless they have a different source of income.

To make matters worse, only 18.4% of members had achieved this target as of May 2023.

In February, the Deputy Finance Minister revealed that the median EPF savings of Malaysians fell by 50% in 2022 to RM8,100, no thanks to the four withdrawals approved by the government to tackle the pandemic.

The Malays, who had RM16,900 as of Apr 2020, are now left with only RM5,500.

According to insights compiled by The Edge, 9.4% of members deplete their savings when they can make full withdrawals at the age of 55.

2 in 10 retirees exhaust their savings by the age of 60.

These alarming facts are precisely why EPF is proposing to halt lump-sum withdrawals for the future generation and other methods to increase the extremely low EPF savings of Malaysians.

EPF: Delaying withdrawal by 10 years will yield an additional 80% return

Delaying EPF withdrawal by 10 years will yield an additional 80% return even after the individual stops making fresh contributions.

Through compound interest, an initial savings of RM600,000 at the age of 55 will almost double to RM1.074 million by 65.

EPF head of strategy management Balqais Yusoff highlighted that members should start early and take advantage of compound interest.

To give you an example, a contribution of merely RM100/month from the age of 20 to 60 will add up to RM185,714.36.

If you start 10 years later, at the age of 30, the same monthly contribution will net you RM94,869.82, which is over 50% less.

“Save so much for what? I’ll die before 65 anyway.”

For those expressing concerns about “dying early” and not having the chance to enjoy their wealth, I completely understand the sentiment.

Firstly, (touchwood), I genuinely wish for all of you to lead long and fulfilling lives.

Yes, the future is uncertain, but that is precisely why we must plan for it.

Think about the reverse: what if we live past 65 and no longer have the capability to convert time into money?

Statistically, Malaysia’s life expectancy is currently 75, which is a lot longer than the average of 47 in 1950, and this figure is only expected to increase in the future.

Now don't get the wrong idea here.

This does not mean that we must delay gratification to such an extent that we’re not enjoying our current lives, but rather, living at the current moment while ensuring that we have a rainy-day fund saved up.

How much do I need to save and invest to RM240,000?

Assuming that you entered the workforce at 24 and earn an average salary of RM2,400/month, you’ll reach this goal within 30 years if you save RM305 per month.

In my previous issue, I discussed how to reach RM100,000 by 35 through both voluntary and mandatory EPF contributions. If you are on track to achieve this goal, you will be establishing the foundation for a comfortable retirement.

Over the next 20 years, even without any additional contributions from you or your employer, your balance of RM100,000 will grow to RM320,713.

That’s all for this week’s newsletter!

DISCLAIMER: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice. The opinions of this newsletter are solely that of the publisher.

Get early access to our newsletter and miss nothing from the markets. Join our journey towards financial literacy today.

Our private announcement group will keep you updated with market movers and urgent matters. For only $1/month, you'll receive our weekly newsletter every Sunday night and daily notifications on important events, some with detailed thoughts from economist Mr. Sani Hamid and RinggitPlus founder Hann Liew.

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✅ Cancel anytime.

✅ Zero ads, zero shills.