The RM60K EPF savings top-up benefit

ONE way to boost your retirement savings is by topping up RM60,000 a year into your Employees Provident Fund (EPF) savings.

This is on top of the monthly statutory requirement. The RM60,000 top-up is a voluntary contribution. It can be done any time in a year. Just imagine what the amount would be, say, in five, 10 or even 20 years besides the dividends and the compounding interest.

Recently, someone opted for a voluntary separation scheme (VSS) after having worked for 30 years. He got a handsome lump-sum payout which he did not expect.

However, he had also been diligently topping up his EPF savings yearly, and in 10 years, it had totalled RM600,000, excluding dividends, compounding interest and inflation.

Combined with the statutory monthly deductions of over 30 years, dividends and compounding interest, his total savings had swelled to over RM2mil at the point he left the company.

It is not a lot of money to some people, but a treasure to others. “I wanted to have RM10,000 as monthly spending money so I topped up my EPF savings every year instead of putting the money into other instruments. RM2mil is a base for me and I intend to withdraw just the dividends as that is decent for now, ’’ Kong (not his real name) said.

Going by last year’s dividend payout of 5.20%, his rough monthly withdrawals should work out to RM8,600, or 86% of RM10,000 that he needs monthly.

Why he opted to top up his EPF savings rather than invest in other instruments is because he is not a risk taker. Based on the past five years of EPF dividend distribution track record, the average annual EPF dividend payout is 5.88% per annum, said Woo Chui Chui, head of investors and affluent, group retail banking at RHB Bank Bhd.

He added that the EPF by law is required to pay yearly dividends of at least 2.5% to its contributors. For now, property rental returns only offer about 3%-4%.

The annual dividend payout by the EPF is based on your savings as at Jan 1 yearly. Your dividends are calculated based on your daily aggregate balance, as per the EPF website.

When you retire, you are really on your own. Whatever you have saved over the years is your war chest which often determines the life you will lead. Bear in mind that the cost of medical care is rising and so is life expectancy, which is forecast at 75 to 82 years.

Therefore, financial planning for retirement should be done early and saving for retirement does not also mean you have to live a frugal life and give up on many things. It is just about planning to maximise on returns.

Some of those in the public sector are less worried about retirement as they have the pension scheme to take them through their golden years. Rare are companies in the private sector that offer such schemes here, so EPF savings are seen as way to accumulate some wealth for retirement.

Many people also have overlooked the main reason for their EPF savings. Some use it as an educational fund for their children and others to purchase property.

That is not wrong if you are stuck for cash, but try your best not to hijack your EPF savings as that is really meant for your retirement. “One should not over-rely on the EPF for other purposes although withdrawal is allowed, as these savings should be kept for retirement, ’’ said Woo.

Woo added that the EPF is relatively a stable vehicle to keep your money for the long term. As with just any savings fund, the benefit of putting your money in the EPF is the dividends and the compounding interest that you could accumulate over the years.

“Hence, the decision to withdraw from the EPF must be justifiable and be used as a very last resort, ’’ he added.

In a regime of low interest rates, the dividend from the EPF appears attractive. It is a statutory requirement for an employee and employer to contribute towards EPF savings and the rate is 11% and 12%/13% respectively of your monthly salary.

However, during this Covid-19 era, the percentages have been revised downwards, but the option is there to retain the same equation as the pre-Covid era.

The EPF in queries to StarBiz said members and/or employers can choose to contribute more than the statutory amount, which together with the compounding effect of dividends, would help to increase the size of members’ funds faster.

Some companies do raise the percentages for both, for various reasons, up to 30%. At 30%, it is 6%-7% more than the statutory requirement.

The top-up of RM60,000 a year is a voluntary contribution by you. It does not have to be a lump-sum deposit. You can also save the same amount for your spouse and children.

“There is no limit on the number of children that a member can top up for, ’’ said the EPF. At 60, you can make a lump-sum withdrawal, or opt to “withdraw savings accumulated from Akaun Emas partially, such as on a monthly basis, annual dividend only or any amount of savings at any time”.

“With this flexibility, members are better able to plan and manage their retirement savings while continuing to enjoy the compounding effect of annual dividends, thus ensuring that their funds last longer, ’’ the EPF said.

The EPF said withdrawals are not subjected to any fee. You can also leave your money in the EPF up to the age of 100 and the same “rate of dividends will be paid to all members based on the dividend rate declared for conventional or syariah savings”.

Of course, the decision is yours to keep your money in the EPF or take it out to invest in other instruments for higher returns. That choice is yours and so are the risks.

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