Should You Put Your Savings in EPF?

Guide

Summary

Guaranteed 2.5% returns per year
EPF has achieved returns of around 6% for the past 10 years
EPF allows for extra voluntary contributions for everyone except public sector employees with a pension
You and your employer can contribute more than the mandatory amount towards your EPF savings
You can now invest in unit trusts at lower fees using EPF’s i-Invest platform

DEEP, DEEP DIVE

What is EPF?

EPF is a risk-free way to save for retirement.These savings are what you’ll rely on when you retire and they can also be a safety net in case you lose your job and become disabled.

Who can invest in EPF?

In short, pretty much anyone except pensionable public sector employees.

EPFs members fall into 2 basic categories:

those that have to contribute to EPF
those that can contribute voluntarily.
Those that have to contribute are both private sector and non-pensionable public sector employees. Do you know that you and your employer can choose to contribute more than normal contribution rates of 11% (employee) and 12-13% (employer)? There is no hard cap to how much you can contribute. It simply requires you or your employer to submit a form to the EPF office.

If you don’t want to commit to contributing more every month, EPF also allows you to make voluntary contributions towards your EPF savings. If you’ve got a bit of extra savings, you can put that money into your EPF account. The cap for how much can put in voluntarily is RM60,000 per year.

What if you don’t have an employer? Well, you can still save in EPF by making voluntary contributions. Go to an EPF counter near you, to get started.

So why are EPF savings even important?

Did you know that a total of 64% of members who have reached age 54 have savings below RM50,000? That person may have only RM50,000 to live off till they die which is scary because your EPF savings are meant to be your income when you retire.

This is why planning for your retirement is critical. To learn more about retirement planning, click here.

How do you know if you’ll have enough for your retirement?

Well, first it’s important to identify the type of retirement you want to have. This way you can more accurately plan for the amount of money you’ll need when you retire. To use our retirement calculator, click here.

It’s much easier to achieve your retirement goals if you start early because you get to enjoy the benefits of compounding. Let’s see an example of the benefits of compounding:

RM1,000 invested in EPF 20 years ago would be RM3,018 today

RM1,000 invested in EPF 10 years ago would be RM1,822 today

RM1,000 invested in EPF 5 years ago would be RM1,362 today

Other than helping you save and grow your money for your retirement, EPF allows you to withdraw your savings for education, health as well as to buy a home.

How do you know if you are saving enough for your retirement?

According to EPF, at the very least, you should have RM1,000 a month post-retirement at age 55 to age 75. This means when you retire at 55 years old, you should have at least RM240,000, but this really should be taken as the bare minimum that you’ll need for your retirement!

Here are their guidelines ( You can have a look at the amount in your Account 1 to see if you are on track to meet EPF’s Basic Savings amount):

Is RM 240,000 at age 55 enough to retire on? Well you may need more. A comfortable income for your retirement might be closer to RM2,700 a month or.

around RM568,000 when you retire at age 55 (This is assumes that inflation is constant at 2% and you earn a 5% return on your retirement savings).

Remember, this is just a guide to help keep yourself on track. So, while you may not have this saved up yet, you should try your best to save so you can get there.

This is where taking advantage of EPF’s voluntary contribution option can help you reach your targeted savings amount.

But why invest in EPF? What have their returns been like?

Well, when you invest in EPF you’ll always receive a minimum 2.5% annual dividend if you opt for a conventional account.

It’s also important to remember that the returns from EPF have historically been at around 6% (last 10 years), much higher than the minimum 2.5% that they guarantee. Returns like these are much better than if you’d invested in fixed deposits (around 3%) which is the investment most similar in risk profile to EPF. On top of that, EPF is a safe investment and generates good returns especially as you take on a very little risk.

These historical returns are generally comparable to the returns of other investment products after you deduct the fees. Why is this important? If an investment product doesn’t give you better returns than EPF after fees, it means you didn’t get any additional returns for the extra risk you took.

EPF achieves returns of around 6% because it has a full time team working to manage your money for you. Most of us will not be able to put in the time to learn and manage our investments with the same level of success. This is why we strongly recommend putting your savings in EPF. If you want to learn what EPF invests in, you can check out their annual reports.

Source : https://www.kwsp.gov.my/documents/20126/f4d7f36f-ff1f-5017-f94d-8bfdf1ffc644

What is the difference between the Conventional Savings Option and Shariah Option?

The Shariah savings option derives its income solely from EPF’s shariah-compliant investments while income for Conventional savings options is generated by a share of both the shariah and non-shariah compliant investments.

Both Muslim and non-Muslim members can opt for the Shariah savings option but there are a few key things that you should note when doing so:

The Shariah Savings account is not subject to the minimum 2.5% dividend guarantee.
All EPF members are put onto the conventional savings option by default. The shariah-compliant savings option is an opt-in option.
Once you opt in to the shariah savings option you cannot revert back to the conventional scheme.
This choice will impact all of your EPF savings.

When can I access my EPF savings?

Since EPF’s goal is to help you with saving for your retirement, you can’t just withdraw money when you want to.

There are 2 forms of withdrawal that are open to members:

Partial withdrawal

These withdrawals deal with members withdrawing their savings before they hit the full retirement age.
EPF allows members to make a partial or full withdrawal from their Account 2 when they reach the age of 50
Beyond that there are several options under which you’re allowed to partially withdrawal:
- housing expenses
- medical expenses
- education costs
- to perform the Hajj
- if you have excess savings
You’ll have to fulfill specific requirements in order to withdraw from your Account 2

Full withdrawal

Once you reach the age of 55, you’ll have full access to the entirety of your EPF savings giving you the option for either full or partial withdrawal
However, you will only have access to any further savings you make after the age of 55 once you hit the age of 60

You shouldn’t wipe out your EPF Savings just because you have access!

Remember, what you leave in your EPF account, still earns returns. Don’t just withdraw your entire savings once you have full access to your account. You should be budgeting your savings so that it lasts for your entire retirement.

What is EPF’s new i-Invest platform?

From 2019 onwards, eligible EPF members can invest in unit trust funds offered by EPF-approved Fund Management Institutions (FMIs) through the self-service i-Invest online platform within the i-Akaun (Member) portal.

Using EPFs platform allows members to enjoy sales charges ranging from zero to 0.5% of the transaction amount. These sales charges are significantly lower than the standard sales fee through other unit trust sales channels such as via sales agents.

Take note, EPF doesn’t bear any risk when you choose to withdraw your money from EPF to invest in the i-invest platform. Your capital and your dividends are not guaranteed once you invest your unit trust.

Simply put, don’t take your money out unless you can sensibly beat the returns that EPF has been delivering! There is very little point in moving your savings out only to invest it in funds that underperform EPF.

Practical tips