EPF recently announced that members will be allowed to apply for a Special Withdrawal of RM10,000 this April 2022 to help many of us cope with the pandemic. In the past two years, we’ve also been allowed to withdraw through the i-Lestari, i-Sinar and i-Citra schemes. This has now led to a growing concern that many Malaysians won’t have enough savings for their retirement.

Did-You-Know¹

EPF declared returns of 6.10% for conventional savings and 5.65% for shariah savings for 2021 – so, it’s a good time to have your savings in EPF. However, since this latest withdrawal application is only for a month, you might feel pressured to withdraw.

While EPF can be a source for emergencies, you must think carefully before withdrawing. If you are feeling the pressure, here are some pointers to help you decide:

Considerations When Withdrawing

Are you withdrawing for a ‘want’ or a ‘need’?

Be very clear on your reasons for withdrawal and, if you decide you have to withdraw, give yourself a limit.
Frequently withdrawing defeats the purpose of setting up a long-term fund for retirement and would lose out from the compounding effects of the interest earned.
Use only for necessities like fixing your home, providing food or medicine rather than for things like downpayment for a car or going for a holiday.

What is your plan to restore what you withdrew?

EPF has stated that members will need to contribute back all amounts withdrawn under the Special Withdrawal, as well as an additional 20% of said amount. This can be challenging, so you will need to:

Figure out if you have the budget to systematically replenish your EPF funds after withdrawal.
Consider ways to free up more cash for the short-term, such as eating at home and reducing online shopping.
Look into supplementing your income with side gigs or upskill so that you can increase your earning potential. You can even consider asking for a raise / promotion if the time is right.

Have you explored other alternatives?

For more short-term & smaller expenses, instead of withdrawing from EPF, credit-lending facilities or loans can also be an option for you, if you are able to manage the repayments.
Take the time to fully understand the terms and conditions of these short-term loans. Avoid getting in trouble from high interest rates and loan sharks.
If you are struggling financially because of loan repayments, you can speak to your banks about short-term repayment assistance to free up some cash.
To help you manage your finances/debt, you can always reach out to Agensi Kaunseling & Pengurusan Kredit (AKPK) for free financial advice.

Why being disciplined with your EPF savings is important

Did-You-Know²

How much do I need for retirement and how do I save up for it

Retirement calculator

Being strict with your EPF savings will help protect your future and we need to remember that long-term savings require a long-term commitment. Keeping our EPF funds intact is important because:

It is a safe and guaranteed investment

With EPF, you are growing your savings with guaranteed 2.5% returns. This makes it an ideal place to invest with low risk as you get older. That’s not the limit however, as EPF has been able to deliver returns between 5-7% in the past 10 years³.

EPF allows you to start saving early, in smaller amounts

By saving for retirement early, smaller savings amounts will still be able to accumulate and grow over a long period, due to the effect of compounding interest. You won’t need to save as aggressively during your later years.

This also allows you to use your savings for other life expenses (house, children, etc.) in the short to medium term.

It better prepares you for retirement

Statistics show that half of the EPF members aged 50 to 54 have at most RM39,585 in their EPF savings⁴. This sum is RM200,000 lower than the basic recommended savings of RM240,000 (by 55 years of age) and is even more worrying when you factor in the rising cost of living, longer life expectancy of Malaysians and the rate of inflation. Withdrawing from your EPF would increase that gap, resulting in you having to work harder in your senior years.

Conclusion

While your EPF may look like an attractive resource to reach into during tough times, you are compromising the benefits it has on your long-term financial needs. Tapping into your EPF should be your last resort.

Ask yourself if it’s an absolute need
Consider alternative options to resolve your financing issues
Start replenishing your EPF funds if you have withdrawn

Work towards habits that fundamentally take care of your financial health, so you may enjoy the perks of financial freedom in your golden years, as you rightfully deserve.

Remember, when it comes to EPF, save as much as you can for as long as you can!

¹ https://www.kwsp.gov.my/en/web/guest/w/epf-committed-to-help-members-rebuild-savings-and-secure-retirement-future

² https://www.kwsp.gov.my/en/web/guest/w/epf-sets-new-target-of-rm240-000-for-basic-savings

³ https://www.kwsp.gov.my/dividend

⁴ https://www.theedgemarkets.com/article/state-nation-putting-oldage-security-within-reach-malaysians-without-public-pension-rm1-mil