Will my EPF savings be enough for me when I retire?
There’ll be a lot of significant changes affecting your EPF savings (and withdrawals) coming in 2021. But for now, we at Akru want to take a step back from all that, and give you a quick explainer on this fundamental question that many Malaysians always ask.
Share this article

Let’s start with the statistics: reports indicate that 54 percent of Employees Provident Fund (EPF) contributors aged 54 have account balances of less than RM50,000 for retirement. Then, according to EPF’s most recently available data from its Belanjawanku, a married couple with one child needs about RM5,700 per month for expenses; while a single person with one car needs about RM2,500.

In other words, RM50,000 won’t go very far in retirement.

As a rule of thumb, the savings rate resulting from EPF contributions is pretty good. Not that long ago, employees had to contribute 11% of their income to EPF, while employers had to top that up with a 12-13% contribution. All of this resulted in a total savings rate of 23-24%.

The last budget reduced the minimum employee contribution to 7%, and Budget 2021 raised it back to 9%. But even with these changes, you could still get a relatively decent savings rate of 20% or more.

In 2019, Malaysians’ total savings from EPF and other sources averaged about 30% of Gross Domestic Product (GDP). This means that our savings rate is higher than the world average, but it’s still lower than countries such as China and Singapore. This could also be useful as a benchmark if you’re trying to compare your personal savings rate with the rest of the world.

Source: World Bank

Choosing between delayed and present-day gratification 

No matter what the national or global savings rates are, the only person who can determine if your retirement savings is enough—whether it’s from your EPF contributions or other savings—is you. It all comes down to your needs, wants and overall lifestyle choices. The more comfort you want, the more you’ll have to save for retirement.

Your ability to save enough for retirement also depends on how much more your income is on top of your fixed expenses that you need presently—housing, food, transportation, healthcare, smartphone bills, and so forth. The bigger the proportion of fixed expenses to income, the less that can go to savings.

This means that it’s a good practice to aim to raise income (which, we understand, is easier said than done) while keeping expenses down. Here, the adage 'don’t live beyond your means' has never been truer when it comes to planning and saving for retirement.

In addition, saving for retirement and investing according to your risk profile (in other words, getting the best returns for the risk you’re willing to take) will do a much better job of getting you closer to your desired retirement lifestyle. Putting too much money into an FD account or trying to stock-pick or fund-pick by yourself risks losing you precious time and efficiency.

It’s very powerful to automate your savings as this would help you establish two income streams. The first income stream is from investing in yourself so that your career advancement earns you more money. Investing in yourself is always a good idea since very little financial capital is needed. Once you reap career dividends, you can continue to save to get the second income stream from your investment returns that would go towards retirement and your other life goals.

How Akru can help

Akru’s retirement module helps you devise your regular savings plan by allowing you to estimate your EPF savings and lifestyle costs. As with all Akru goals, we estimate future lifestyle costs based on your costs today. We do this during a simple get-to-know-you process when you’re setting-up your Akru portfolio.

To use a very simple example that’s by no means definitive, let’s consider Aaron, a 25-year-old single guy with one car and who lives in the Klang Valley. He’s aiming to have a retirement lifestyle where he’d spend the present-day equivalent of RM3,000 a month. So, if Aaron earns RM2,500 a month now and contributes to EPF, he’d need to save less than RM300 a month with a high-risk profile. Then, if Aaron decides to retire at age 65, he will accumulate slightly more than RM2.3 million in EPF (about RM1.5m) and personal savings (about RM840,000), which will be sufficient to maintain his inflation-adjusted lifestyle until he reaches the grand ol’ age of 90.

Aaron could certainly save more to have a more luxurious retirement lifestyle. For example, if Aaron wanted to spend today’s equivalent of RM6,000 a month in his golden years, then he would require monthly savings of slightly over RM1,000 now to fund a more upscale retirement lifestyle.

At this point, we’d like to reassure you if these figures seem unattainable. If this can’t be achieved right away, you can save something in between—and we’ll tell you how much to top up as your income grows. When you retire, Akru can also manage your retirement funds to give you a monthly income and invest unspent funds to keep your money working hard for you.