PETALING JAYA: Healthcare costs, household commitments and living expenses are among aspects that should be accounted for when setting retirement savings benchmarks, say economists.
Putra Business School professor Dr Ahmed Razman Abdul Latiff proposed that retirement adequacy also consider healthcare inflation and probability of requiring medical treatment later on.
“There are also different implications for single retirees compared with those supporting spouses or other dependents.
“Retirees who own a fully paid house also have a very different financial position from someone who is still renting or servicing a mortgage,” he said, adding that investment returns and withdrawal strategies for each depositor was also crucial.
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Ahmed Razman said the Employees Provident Fund (EPF) framework should incorporate scenarios spanning 25 and 30 post-retirement period.
The EPF Retirement Income Adequacy Framework has a three-tier savings framework –Basic Savings and Income, Adequate Savings and Income, and Enhanced Savings and Income.
The Basic Savings level is RM390,000, followed by Adequate Savings (RM650,000) and Enhanced Savings (RM1.3mil).
In July, Deputy Finance Minister Liew Chin Tong told Parliament that 38.3% of EPF members achieved the Basic Savings threshold as of May 31.
They accounted for 3.04 million of the 7.94 million EPF contributors in the 18-60 year age group.
Sunway University economics professor Dr Yeah Kim Leng said monthly retirement withdrawals under Basic Savings can vary between RM1,300 and RM1,650, with the retirement period typically lasting 20 years.
Assuming current inflation and investment return rates, he said the amount met the minimum level for a lifestyle covering the most essential needs but remained inadequate for a comfortable lifestyle.
“Retirement savings adequacy is also subject to periodic revisions depending on prevailing economic and financial conditions and expectations.
“Upon achieving the Basic Savings target, contributors should then aim for Adequate followed by Enhanced savings targets.”
He added that further revisions can be expected due to future economic and financial conditions.
Dr Yeah said a key challenge facing the government was to continuously strengthen the social safety net to cover the aged population not just for those with formal savings schemes but also in the informal sector.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the savings target achieved so far indicated improved awareness on retirement savings.
“The idea is to ensure members are cognizant about withdrawing their EPF savings prematurely as it will compromise the ability to enjoy the compounding factor from the existing savings and subsequently be able to accumulate ample savings when they retire.”
He pointed out that the savings target was dynamic, with EPF revising the figures every few years.
