Are you well prepared for retirement? : Point To Ponder

Effective Feb 1, EPF will have three options for contributors reaching 55 to withdraw their savings — total, partially or monthly

WRITTEN on the wall of a coffeeshop at Poh Kwong Park in Kuching is a Mandarin graffiti that sums up the philosophical wisdom of financial security in life probably better than most text books.

Its translation reads: A man’s greatest regret is to die before spending his wealth; a man’s greatest tragedy is to spend all his wealth and go on living.

The second part of this wise statement puts in a nutshell the greatest fear of the aging population — living without any income or savings and depending on others to survive.

With the present life expectancy in Malaysia at 71 for men and 76 for women, and the present retirement age at 55, the average man now has to go through the last 16 years of his life without income, totally reliant on his savings and support from his family while a working woman will have to go without income for 21 years … if both stop working after 55.

hose in government service will have the cushion of a life-long pension to fall back on although with rising inflation, many pensioners are complaining of difficulties in making ends meet on half their last full pay.

However, they are luckier than many public sector workers who rely solely on their Employees Provident Fund (EPF) contributions in their twilight years.

The bad news for this group is that studies by banks and insurance companies in Malaysia have shown generally, their total EPF contributions up to 55 years will be enough to sustain them for only three to five years if they were to live the lifestyle of their working years.

Even more alarming is the recent EPF finding that 60 per cent of those who with drew all their contributions at 55, spent all of it within three years, leaving them destitute if they did not have other forms of savings or support from their children or other immediate family members, and if they did not work after retirement.

To help retirees manage their savings better, EPF has worked out three options for 55-year-old contributors to withdraw their money. (See table on the right)

A senior EPF officer from the Kuching headquarters said the withdrawal options were flexible in that a contributor who opted to withdraw his savings through monthly payments could also take up the partial withdrawal option at the same time.

“A person who opts for a fixed monthly withdrawal can also apply for partial withdrawal of not less than RM2,000 if there is sufficient fund in his account,” she said.
She pointed out that this was to allow the contributor to meet emergency expenses or take out a larger sum for holidays.

According to her, those who have withdrawn all their contributions but are continuing to work or have been re-employed after a break, can elect to re-contribute before Feb 1 on the present ratio of 11 per cent from the employee and 12 per cent from the employer.

Those who still have funds in their account (because they opt for partial withdrawal or monthly payment) will automatically continue to contribute on the same percentage ratio if they continue working or have been re-employed after a break before Feb 1.

However, those who are re-engaged, or have reached 55 after Feb 1 but continue to work, the contributions will be halved — meaning the employee will contribute 5.5 per cent of his pay while the employer needs only pay six per cent.

Those above 55 who were employed before Feb 1 would not be affected by this new ruling, she said.

“Employers must pay their share of EPF contributions to their employees who are above 55 as they are bound by law to do so,” she warned.

The officer disclosed the age limit of EPF contributors was 75 and those who did not withdraw their contributions after that age would not be entitled to any dividend and if the contributions were not withdrawn five years after their 75th birthday, the money would be transferred to Bank Negara as unclaimed monies.

A person will also cease to be an EPF member after he withdraws all his contributions for the second time.

This means if he remains employed after 55, he can only withdraw partially or opt for monthly payment to continue saving with EPF … that is if he has already made one total withdrawal.
While EPF contributions go a long way towards providing financial security for senior citizens, many would still be in a precarious position if they were to depend solely on their EPF savings.

Financial analysts calculate that an estate of RM300,000, invested with a return of eight per cent and factored by a four per cent inflation rate on the living expenses, will last only 14 years if the survivors need RM30,000 to live on a year.

The vast majority of retirees do not have RM300,000 in their estate. Even if they were to scale down their living expenses, unemployed retirees could reasonably expect to live on their savings (yielding an invested return of eight per cent interest) for slightly more than 10 years before going broke if they did not receive any help from their families.

EPF contributions and government pensions provide financial security, albeit in many cases barely adequate, to retirees who are employed in the government service and private sector but daily paid labourers in the informal sector, farm-hands employed without contracts, hawkers and small-business operators do not have such protection in their old age.

Another group of workers very vulnerable to financial distress in their twilight years are housewives who slog most of their lives looking after the family and have to rely solely on their children for support after their husbands have died or are no longer in a position to provide for them.

Alas, many life stories do not have happy endings and senior citizens, abandoned at old folks’ homes, bear testimony to the harsh reality that life’s expectations are often unfulfilled.

There are many options for people who are not covered by EPF or pensions to prepare for their retirement but all these financial plans do not necessarily involve forced savings and to a large extent, require self-discipline to carry through to retirement.

Generally, Malaysians do not seriously plan their retirement and this is reflected by the fact that only 30 to 35 per cent of the population is insured or has taken up retirement plans.

However, this figure does not reflect the actual number of people covered by insurance or retirement plans since the statistic is derived from the ratio of the number of insurance policies and retirement plans signed and the total population.

A senior insurance manager pointed out that most of these policies and retirement plans were taken up by the higher income group who often had more than one policy while the lower income group, especially those in the rural areas, were very poorly covered.

Sadly, it is the lower income group who are most in need of insurance protection and retirement plans and are also the ones who fail to plan for the future.
Their usual excuse is they could hardly make ends