THE Employees Provident Fund’s (EPF) declaration of the dividend for 2016 brings to mind the many Malaysians, especially those who are about to retire, who do not have enough in their EPF accounts to live on.
The numbers are sobering enough. According to the EPF, as of 2015, two-thirds of members aged 54 have RM50,000 or less in their accounts. This amount is likely to be used up within five years of retirement.
These members, assuming they work to 60, have only six years to contribute but what is worse is that the EPF has calculated that, at the minimum, a member must have RM228,000 at age 55. This is the official target as of the beginning of this year, from RM196,800 previously.
Escalating living and healthcare costs mean that these people will very soon exhaust whatever they have. “A financial timebomb” is how financial planners describe it because by 2035, those above 60 will make up 15% or 5.6 million of the total population.
MyFP Services Sdn Bhd managing director Robert Foo points to subdued wages as the main cause of the low savings.
“We are facing a financial time bomb, people don’t have much money in their EPF, income is not growing and cost is going up. That’s the perfect storm for an explosion,” he says.
EPF data also showed that more than half of Malaysians have no financial assets and one in three Malaysians do not have a savings account. Not having other savings to fall back on is hard enough but not having a savings account makes it harder for them to save too.
Financial planners believe that the minimum basic savings revised by the EPF will not be sufficient for a comfortable retirement due to increasing costs and the rise in life expectancy of Malaysians.
Often, the figures bandied around by financial planners when they advise clients is that, at age 60, a person must have around RM1mil. Excellentte’s Jeremy Tan points out that Malaysians are living longer and will need to factor in inflation for all their healthcare and day-to-day expenses.
The reality of life after retirement, when most except the financially savvy have no income, hits home when a person needs to be cared for, says New Legend retirement home founder Rajandran Pekchan. Roughly four-fifths of those staying in his retirement home is 85 and above. Rajandran, a former insurance agent, says given that those who worked would have retired at 55 then, it means that many in the home have not drawn an income for 30 years or more.
“While insurance agents used to say it is easy to die, I was saying it is not easy to die so I used to talk to my clients to plan their retirement. If you had saved for 40 years while working, it will only last you 10 years because of inflation,” he says.
Rajandran suggests the government should consider allowing EPF savings to be withdrawn on an annuity form, instead of a lump sum payment.
Meanwhile, Tan says those who start working should cultivate the habit of saving, especially for an emergency fund in their earlier years. “The emergency fund can be placed in a fixed deposit account and we recommend that funds should contain three to six months of their income to survive if they are retrenched or unemployed,” he says.
Ultimately, to be financially independent, a person needs to resist the temptation to spend. For Whitman Independent Advisors Sdn Bhd founder and managing director Yap Ming Hui, this is particularly true of those who find themselves constantly spending on the latest technology gadgets.
“In a challenging situation for a fresh graduate, if they can save even RM50 a month, that will be a success as it builds up the habit to be a saver,” he adds.
Ideally, financial planners estimate that an average Malaysian should save between 10% to 30% of their salary.
“The 30% saving is not solely from the salary as 11% is contributed by EPF, so you need to save 19% from the salary. If you can save that money and invest, you will be on the path to financial freedom.” Yap says.
The spending trends of Malaysians was captured in a report by Khazanah Research Institute, which says people are borrowing too much and not saving enough.
“Planning must be done as early as possible, because it gives you the options when you plan early. When you plan later, your options are actually reduced,” Foo says.
Yap says insufficient retirement planning often boils down to the people planning having to take a long-term perspective.
“The money you earn today, it is not meant for you now. It is meant for your retirement, a lot of people miss that picture,” he says.