Azlan recently graduated and started working as an executive at an SME. He has seen how his retired parents are now extra careful with their money because they did not contribute much to their EPF and now have to rely on their savings to survive. They can’t enjoy life as much as they did when they made more money from their monthly salaries – Azlan thought it seemed like such a waste after working so hard for many years. He is worried he would have to live that way when he retires, too.

To help him have more money when he retires, Azlan’s colleague recommended he contribute more than 9% of his salary to his EPF. Should Azlan do that?

Currently, you must contribute 9% of your salary while your employer will contribute either 13% or 12% depending on if you earn more than RM5,000 monthly to EPF.
[To help Malaysians have more money during the Covid-19 crisis, the compulsory EPF contribution has been reduced from 11% to 9% from January 2021. To keep your contributions at 11%, you will have to fill up a form called ‘Borang KWSP 17A (Khas 2021)’ and submit it to your employer. Thereafter, if you wish, you will be able to increase your EPF contributions to a higher rate].

How much do you need to retire comfortably?
For a rough idea, if you would like your retirement savings to last for 20 years after your retirement, it would be good if it makes up 60% of your last drawn salary on a monthly basis to be able to maintain your lifestyle. To figure out how much you need, use this calculator. Alternatively, you could also check your online EPF account to see if your savings are on track. If it’s not, you may want to increase your contribution.

Do remember, the earlier you start saving for your retirement, the easier it would be for you to achieve your goal. Read our Guide on Planning for your retirement to find out more.

How much can you contribute to EPF every month?
For your mandatory contribution (from your employment salary), you can contribute up to 100% of your salary (after other deductions) to EPF. But unless you have other sources of income, this might be tough to do. Instead, you could increase your EPF contributions above the mandatory 9% to an amount you are comfortable with.

On top of your mandatory contributions, you could additionally contribute up to RM60,000 per year to your EPF savings.

So, should you increase your EPF contributions?
If you realise you’re not on track to achieving your retirement savings goal, it’s a good idea to immediately put away as much as you can.

But make sure:

You can pay for all your necessities and support your lifestyle with the balance of your salary after your EPF contribution.
You don’t want to make other investments that may give you better returns (with most likely higher risk).

The pros are:

Lower risk, higher return
The risk of losing your savings with EPF is quite low with a guaranteed return of 2.5% yearly. Over the last 10 years EPF has given an average return of 6% per annum.

Tax relief of RM4,000
There is also a tax relief of up to RM4,000 (per year) for your EPF deductions.For example, if you earn RM3,200 per month, at the current rate of 11% you would have contributed RM4,224 to your EPF savings for the year.
With no other deductions, you will be paying RM305 in taxes for the year.
If you increase your EPF contribution to 15%, you would be contributing RM5,760 to your EPF savings and will only have to pay RM259 in taxes.This way, you will be saving more money for your retirement and paying less in taxes!

The cons are:

You can’t withdraw your savings without reason until you’re at least 50
In case you need money for any reason that is not listed by EPF, you won’t be able to withdraw money from your savings.

That may seem like a disadvantage, but it can be a blessing in disguise as you won’t be able to unnecessarily withdraw your savings.

If you decide to increase your EPF contributions, all you need is to fill out form KWSP 17A (AHL) or click here.

To learn more about saving and investing read the articles below :
Investing 101

Unit Trust

Should you get a fixed deposit?