EPF released two things on Thursday

• Belanjawanku 2024/2025

  An expenditure guide that “realistically estimates” your monthly costs to maintain a reasonable standard of living.

• Retirement Income Adequacy (RIA) Framework

  A three tiered savings guide to ensure adequate income during retirement.

Read on to understand what this means for you.

Belanjawanku 2024/2025

This is an expenditure guide that categorizes your spending into several areas to estimate the minimum monthly expenses required for a decent standard of living.

According to the Social Wellbeing Research Centre (SWRC), a “decent standard of living” means that you should have enough financial resources to “afford not just the minimum basics but also the ability to participate in a society.”

Initially focused on the Klang Valley, the guide now covers 11 major cities nationwide, offering a more realistic reference for citizens to plan their budgets.

The expenses are broken down into 11 areas with several assumptions. For instance, a single person’s housing cost is based on renting a fully furnished room, and the bill for utilities include expenses for water, electricity, telephone / internet / personal data plan and ASTRO TV.

Observations of the Study

i) Single individuals owning a car now require at least RM2,800 per month to survive in the Klang Valley.

This is a 7.7% increase compared to 2022’s figure of RM2,600.

ii) Married couples without children require at least RM4,970.

The expenses jump by 29.2% to RM6,420 for couples who have a child, and to RM7,440 for those who have two children.

iii) Retirees living alone will need RM2,690, slightly lesser than single car owners.

For elderly couples, the amount jumps to RM3,390, a 5.6% increase compared to 2022’s figure.

But how accurate are the estimations?

Though EPF has only given us a glimpse of the latest Belanjawanku study, you could actually refer to the studies from previous years and compare them with real world costs.

For instance, the 2022/2023 guide estimates that a single car owner living in the Klang Valley requires RM2,600 per month.

It expects you to spend only RM610 for food every month (or ~RM20 per day), and your housing cost (ie. renting a fully furnished room) is only RM370.

This is obviously an unlivable sum. Last I checked, renting a fully furnished room in the Klang Valley is not cheap.

The price ranges from RM750 to RM1,200, which is easily double or triple the estimations done by the study.

Moreover, spending ~RM20 per day on food is just impossible.

Economy rice stalls are charging RM10-15 per plate now, and hawker stalls (ie. Nasi Lemak, Chee Cheong Fun) charge RM8-10.

With drinks, the cost per meal could go up to RM15-20, which is already your entire daily budget based on the study.

In reality, the minimum daily expenses for food should be RM40-50 (or RM1,200-1,500 per month).

This is the questionable part of the study that bothers me. I’m not sure if it’s conducted with a bias to the downside, but some of the numbers simply do not make sense.

The Retirement Income Adequacy (RIA) Framework

The RIA Framework is a new savings guide to help Malaysians better plan for retirement and set goals based on their desired lifestyle. It is separated into three tiers:

• Basic – covers basic necessities

• Adequate – provides a reasonable quality of life

• Enhanced – supports a higher quality of life

How are the numbers derived?

The calculations are based on the Belanjawanku study, which estimates that single retirees require RM2,690 to cover their basic needs and expenses. From this figure, the new savings targets under the RIA Framework are:

• Adequate: RM650,000 (240x the Adequate Retirement Income)

• Basic: RM390,000 (60% of Adequate Savings)

• Enhanced: RM1.3 million (double the Adequate Savings)

Increasing monthly drawdown, up to RM14,779 per month for Enhanced Savings.

The framework allows increasing monthly withdrawals to sustain a retiree for 20 years, aligned with Malaysia’s average life expectancy.

For example, with RM390,000 in basic savings, you can withdraw RM2,708 per month in the first year, which will grow to RM7,389 by the 20th year.

For those with RM1.3 million in savings, the monthly withdrawals start at RM5,417, increasing to RM14,779 by year 20.

The numbers will be adjusted once every 3 years to ensure relevancy.

How do I know if I’m on track to achieving these goals?

You may refer to EPF’s new savings levels below. If you’re currently 30, you would need:

• RM38k to hit the basic savings target

• RM47.5k to achieve adequate savings

• RM85.4k for enhanced savings

FYI, the new basic savings of RM390,000 is a 62.5% increase from 2019’s figure of RM240,000.

EPF hopes to gradually transition to this target by 2028.

As of October, EPF reports that only 36% of active members aged 55 have saved up to the current Basic Savings level of RM240,000.

Worrying numbers: Wages are not in line with the Belanjawanku study.

If the study itself fails to provide a realistic estimate of the true cost of living, then the fact that our wages don’t even match the published figures makes things even more concerning.

According to DOSM’s latest wage data, the median salary of Malaysians have increased by 7.1% to RM2,602 last year.

Though it is a notable increase, it doesn’t deny the underlying fact that we are still severely underpaid.

Since this is the median, it means that 1 in 2 formal workers earn less than RM2,602 per month, which is way lesser than Belanjawanku’s “optimum figure” of RM2,800 for single car owners living in the Klang Valley.

Youngsters are earning just slightly more than the minimum wage.

The median salaries of those aged between 20-24 stood at only RM1,593, while those aged 25-29 were earning RM2,076.

With such a low income, how can we expect them to afford a house, buy a new car, and get married by 30?

What’s the solution? Can the government do something about our wages?

There's no need to wait for the government to come up with a solution (because they're not very reliable).

You can climb out of this trap yourself by focusing on increasing your income:

1. Set a high KPI for your job

2. Smash it

3. Negotiate the highest salary increment from your employer

4. Leave for another job if there’s no increment

Though simple, these four steps are not easy, especially when you have to muster up your courage to demand a better pay from your employer.

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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.