What No One Is Telling You : EPF Is Not Enough!

Dr. Adrian Wong

4 years ago

While Malaysians are groaning about the lower EPF dividend, we are missing the BIG PROBLEM here – that EPF is not enough to retire on, even if they give us 6% returns every year!

It’s time to wake up, and realise that we need more than just what EPF is giving us in dividend. There’s still time to build up our coffers, but we need to do it NOW!

EPF : Good Returns But It’s Not Enough!

Even with a lower dividend of 5.45%, EPF dividends are actually good – certainly better than fixed deposit rates!

In the past few years, EPF has returned an average of just over 6.2% per annum, which gives us a real dividend rate of about 5%.

While EPF’s performance is important in ensuring that our retirement fund grows as we age, the sad reality is that our EPF retirement fund was never going to be enough to retire on.

EPF Recommendations Are TOO LOW

In 2017, EPF set RM 228,000 as a minimum saving target for people to retire on at 55 years of age. But that’s absurdly low, because it’s based on :

the MINIMUM pension for public sector employees, which is just RM 950 per month
the assumption that you will only live for 20 years, before you croak at age 75.

Ironically, they budgeted in 2018 that an elderly couple would survive on a budget of RM 3,090 per month. That’s RM 1,190 or 63% more than the minimum pension they based their minimum saving target on.

In other words, anyone who followed their recommendations and saved up RM 228K by age 55, will run out of money just 6 years 3 months into their retirement.

How Much Do We Need To Retire?

That depends on how much you really need to retire on.

Let’s say you are 40 years old and married, and you can survive comfortably as a couple on:

RM 1,900, as the government pension suggests,
RM 3,090, as EPF suggests, or
RM 4,000, as we suggest as a target to shoot for

But instead of 55 years of age, we will retire at 60 years, which has been the minimum retirement age in Malaysia since 2013. And let’s assume a real inflation rate of 3%.

This is how much you must have in your EPF + bank accounts by the time you retire at 60 years of age :

Life Expectancy	RM 1,900 per month	RM 3,090 per month	RM 4,000 per month
80 Years	RM 762,580	RM 1,240,196	RM 1,605,432
90 Years	RM 1,103,018	RM 1,793,855	RM 2,322,143
100 Years	RM 1,419,977	RM 2,309,331	RM 2,989,425

Twenty years from today, a retired couple will need A LOT more than the RM 228,000 that EPF suggested would be sufficient in 2017.

For an elderly couple to be financially independent enough to retire in 2040, they will need at least RM 1.24 million if they intend to withdraw about RM 3,000 per month.

And remember – this is assuming that you will both only live up to 80 years, and not need expensive medical care in your twilight years.

Therefore, it would be only prudent to TARGET a retirement budget of RM 4,000 per month, and a lifespan of 90 years. That means we should plan to accumulate at least RM 2.3 million in our EPF and saving accounts in twenty years.

We Need To Save More, Not Rely On EPF!

EPF is great at growing what we contribute, but it’s a pittance of what we really need to retire on.

To hit even the minimum target of RM 1.24 million, we will need to save no less than RM 5,167 per month as a couple.

For the ideal target of RM 2.33 million, we will need to save at least RM 9,676 per month for the next 20 years!

This is how much we need to SAVE MORE, in addition to what we are contributing to EPF :

Retirement Budget (Per Month)	Required Savings (Per Month)	EPF (Per Month)	Deficit (Per Month)
RM 1,900 (20 Years)	RM 3,177	RM 874	– RM 2,303
RM 3,090 (20 Years)	RM 5,167	RM 1,421	– RM 3,746
RM 5,000 (30 Years)	RM 9,676	RM 2,400	– RM 7,276

Both employee and employer contribute 23% to 24% of the salary to EPF.

If a couple earns RM 3,090 x 2 per month, that’s a joint contribution of RM 1,421 per month or RM 17,057 per year
If a couple earns RM 5,000 x 2 per month, that’s a joint contribution of RM 2,400 per month or RM 28,800 per year

That’s not enough for our retirement fund, no matter how much dividend EPF gives you every year – whether it’s 5% or 6%.

We all need to focus less on how much EPF gives in dividend every year, and focus more on how to ADD 2.5X to 3X MORE to our retirement fund!

What Can We Do : The Quick & Dirty Version!

For more details on how to calculate your retirement fund, and how to achieve that, we recommend our previous articles :

But here is a quick and dirty guide on what we can do about our retirement fund…

Save MORE : Forgo expensive purchases like fancy cars, parties and holidays, and put the money into your retirement fund!
Start saving EARLY : Start saving for your retirement from your first pay check!
Invest Your Savings : Put your savings into high-yield investments options like EPF, property, stocks, etc. that generate yields of 6% per annum or better. Don’t leave your money in a savings account, and let inflation eat it away!
Generate more income through a second job, investments in stocks, property, etc.
Plan for a smaller pension : Try to cut your expenses when you retire by at least 30%.

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