For many, 28 is too young an age to worry about retirement. But to M. Mogana, who is an advisor with the Retirement Advisory Service (RAS) of the Employees Provident Fund, it’s never too early. “We are glad to get in members at that age asking about increasing their retirement savings,” says Mogana, based at the EPF branch in Petaling Jaya.
She stresses that planning for retirement should start right from the day one enters the employment world. “When you start saving early, it will help increase your savings and enhance the power of compounding dividends, adding up to healthier savings for retirement.”
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She points out that retirement is not only about money. “It covers all aspects of one’s life. You will need to buy assets and plan for your children and their education, for one. Financial planning is essential – you have to learn to budget from young: what is necessity and what is want.”
RAS is also encouraging members, especially the young, to diversify their savings. “We advise members not to put all their eggs in one basket. It is wise to have a portfolio of investments and wealth management to guarantee a better future,” says Mogana. “So, we are encouraging members to diversify their savings, and when they come to us, we will advise them on the opportunities and risks.”
RAS is an initiative by the EPF to enhance members’ awareness on the importance of retirement planning. The service is the first of its kind in South-East Asia. It is to guide EPF members to make informed decisions before making withdrawals from their retirement fund, says Mogana.
“We are here to educate members of all ages on ways to manage their retirement savings and create a sustainable monthly income so that their savings can last longer and help them through their retirement years,” she says.
“Normally, for members who are 35 and above we emphasise more on retirement planning, while for those who are 35 and below we emphasise more on financial planning.”
RAS was created in 2014 when it was found that 65% of EPF members aged 54 years and above had RM50,000 or less in their savings. Today, the number has only gone down 1%.
What is more worrying is that studies show a large percentage of EPF members tend to exhaust their savings within three to five years after retirement.
“The life expectancy of Malaysians is 75, so many members do not have sufficient funds for their twilight years,” warns Mogana, adding that retirees need to ensure they are financially stable five to 20 years after their retirement, especially with the rising cost of medical care.
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The EPF currently has 14.8 million members, of which 6.88 million are active. The majority, 58.33%, is 35 and below. That is why the EPF is increasing efforts to raise awareness of the importance in retirement savings among new graduates and students, says Morgana.
“We are going to colleges and improving our online services to cater to the younger generation. The minimum age to join the EPF is 16.” One issue, she adds, is that Generation Y (aged 21-35) has a tendency to jump jobs every two to three years.
Then there is a growing number of the young generation, including those in Generation Z (aged 16-20), who is self-employed or involved in the gig economy. “Those who are self-employed or working part-time have the option of joining the 1Malaysia Retirement Scheme,” she says. Under this scheme, members can deposit a minimum of RM50 up to RM60,000.
The EPF also encourages the younger members to save beyond the statutory contribution rate of 11% of their salary.
“It may seem a lot at a glance, but our advice to members is that it will not make a huge dent (in their disposable income) if the increase is just at 1% a year. So they should look at their cash flow and if they have excess money, they should increase their EPF contribution. If you start when you are in your 20s, your contribution rate will be 20% when you are in your 40s. Imagine your retirement savings then!” says Mogana.
She says it is also a viable option for other age groups. “On average, a person gets a 5% increase in salary every year. But normally, people will increase their financial commitments when they get a raise. If you invest just 1% of that increment in EPF, over the years, you will also have bigger savings for old age.”
Still, the RAS’ main target now is members who are above 40. “Most EPF members find it difficult to manage their funds due to inadequate financial and retirement planning,” she notes.
By the age of 40 they are busy raising families and their focus is saving for their children’s education. By the time they are in their 50s, they will not have much time and need to rethink their credit management so that they are not burdened by debts in their retirement years.
“As they are getting closer to their retirement years, they should not take big financial risks,” she says.
The EPF’s main concern is the sandwich generation – the in-between generation who have to support their ageing parents as well as their children and sometimes, grandchildren.
“Their retirement savings will not only be for themselves, so they need to take those commitments into account,” she says.
Surprisingly, many members don’t even know the different types of withdrawal schemes provided by the EPF, such as the flexible withdrawal scheme at 55. Many are also not sure how much they would need after retirement.
“It depends on your lifestyle. Each individual has different lifestyles and desires. Some members only need RM3,000 per month, others need RM5,000 or RM10,000. I had someone once who said she only needs RM600 a month as she cooks all her meals and takes public transport. If you want to live on RM5,000 a month, you need to have at least RM1mil of savings in the EPF,” she says.
A common question from retiring members is whether they should settle their house loan with their retirement savings. Mogana cites one example of a member who has EPF savings of RM1mil at 60, but a home loan balance of RM650,000.
Members should take into account several factors before using their EPF savings to settle their home loan balance, she advises.
“After retirement the members need cash in hand more than when they were still working. Among the factors that need to be considered is the repayment period for housing loans, whether the member relies entirely on retirement savings or has passive income, and whether the member lives in the house or it is an investment asset, among others.”
Looking at the RAS’ important role in creating awareness in saving for retirement – since it started more than 54,500 members have sought its advice in planning their retirement – the service has been expanded to more EPF branches in the country.
There are plans for RAS counters at more EPF branches nationwide by the beginning of next year, on top of the 18 now, to reach out to more members. “With proper planning, members can manage their retirement savings so that they can live comfortably and support their lifestyle in their golden years,” Mogana notes.
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