Wednesday, April 22, 2015

Employee Provident Fund—Financial Management

There's been a lot of talks about the Employee Provident Fund (EPF) recently. The debate basically focuses on the proposal to extend the qualifying age for withdrawal from 55 to 60. I read with interest an article in Star Online with the headline: Most contributors not interested in other withdrawal options.

Based on my conversations with friends, many people have that curious suspicion that the Malaysian government is in serious financial trouble, and it's planning to use at least a portion of the money in the EPF, thus resulting in its inability to allow withdrawals at age 55. There is that fear that there is eventually nothing left to withdraw from EPF!

Of course there are other justifications why contributors would want to withdraw their savings at 55. Check out the article above; I shall not go into the merits of every reason quoted therein, but I'm attracted to a suggestion for "flexible withdrawals from ages 45 through 55 as most contributors are well-versed in managing their own finances".

I could not help but smile when I read that suggestion, because, actually, way too many people are NOT so well-versed in managing their own finances. Most of them would have exhausted their savings within a few years of retirement, a fair number of them as quickly as within a year of withdrawing their savings.

I suppose there are several good investment plans out there that can yield higher returns than keeping one's money in the bank. If the principal investment is big enough, one can survive on the annual returns alone with the principal amount intact. Investment strategies such as these are easy to understand, even if the investor did not go to college. 

But truth be told, while the investment theories are easy to understand, they are not always easy to implement. Many years of forced savings can quickly disappear in a matter of months.

Well, I will be turning 50 this July, and accordingly will be eligible to withdraw a portion of my EPF savings. As of now I have no plans to make that withdrawal. This is because I consider my savings in the EPF as strictly for retirement, not for holidays, not for investments, not for buying luxury items. However, if a secure investment opportunity comes along which can produce a reasonably good steady income, then that would be worth considering. Otherwise, my money remains in the EPF until the maximum duration it can remain there. I will take my chances that there is still money in the EPF to withdraw when the time comes.

Meanwhile, recently I was told that the average amount of savings in the EPF per contributor at 55 is between RM100,000 and RM200,000. I'm not sure if that was an accurate information, but if it were true, I think many, many people will be finding it extremely tough to survive their retirement years. Scary!

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