Retiring with Peace of Mind … Is It Possible?
Would your EPF account help you comfortably coast into your golden years? For most of us, the answer is a resounding NO.
Sadly, only 18% of EPF members meet the EPF’s (very) minimum savings target. This means that the majority of Malaysians will need to rethink their retirement finances.
Thankfully, there are more ways to prepare for retirement and add to your EPF savings.
Here are three practical suggestions for retirement planning to consider:
1. Retirement Insurance
What is it?
Annuity insurance plans are a unique retirement add-on that basically pays an income when you retire.
It will guarantee an income stream that kicks in upon retirement (or retirement age).
For example, you can purchase retirement insurance that will supply an income of RM3,000 per month for 10 years after your retirement.
Various plans are available that may cover a higher or lower sum per month as well as a longer or shorter tenure of income.
However, the income isn’t meant to cover you for as long as you live; only for the specified tenure, typically 10 to 15 years, depending on the plan.
Often, bundled benefits are offered with retirement insurance such as a death benefit or personal accident insurance.
In addition, you may also receive a cash value benefit if you are diagnosed with a critical illness (e.g. stroke or heart disease), TPD or death (before maturity).
But remember that the cash value of the plan is often less than the sum of the premiums you have paid.
Another plus point for retirement insurance is that flexible options exist, along with affordable premiums.
Some come with single-payment premiums, whereas others may involve continuous premiums over the length of the term.
Moreover, many retirement insurance plans are subject to tax relief of up to RM3,000 (with approval from the Internal Revenue Board).
Who is it for?
An annuity plan is meant for people who would prefer an income stream rather than a lump sum when they retire.
An example of an annuity plan would be Great Retirement, offered by Great Eastern.
There are also investment-linked retirement plans that may combine a guaranteed income portion as well as a lump sum payment.
The lump sum amounts may come from investments, if any, or the cash value from the premiums paid.
An example of this type of plan is PRUretirement Growth, offered by Prudential.
Other things to know about retirement insurance
Retirement insurance alone is not enough and doesn’t typically take the place of EPF.
This is because, the income stream only lasts a certain amount of time and no one can accurately predict your lifespan.
However, the right plan can be a worthwhile addition to your retirement fund so that you can retire more comfortably and sooner, even.
2. EPF-approved Unit Trust Fund
What is it?
It is a unit trust fund investment made with cash from your EPF savings account.
For example, if you want to invest for your retirement but don’t have the cash in hand to do so, you may withdraw from your EPF account to invest.
Under the Members’ Investment Scheme, you may use up a portion of your savings from Account 1 for investments to improve your retirement finances.
There are a variety of unit trust options in terms of risks and investment goals e.g. regular income streams, gains on the sum invested or a combination of both.
How does it work?
Members are allowed to invest up to 30% in excess of their basic savings amount accumulated in Account 1.
Firstly, what this means is that there is a predetermined figure of how much one should have saved in Account 1 by the time they have reached a certain age.
For example, by age 30, according to the basic savings table, you should have at least RM29,000 saved in Account 1, to qualify for the investment withdrawal.
Now, the amount you are allowed to invest is no more than 30% of the total sum you have in the account, minus your basic savings figure.
To illustrate, if you are 30-years-old and you have RM75,000 of savings in Account 1, the maximum you are allowed to invest is RM13,800.
And this is quite a decent figure, since the minimum investment into most of the approved unit trusts is just RM1,000.
Who is it for?
Only EPF members, below the age of 55 (on the date of application) with sufficient funds can apply.
To calculate if you have sufficient funds to withdraw for investment, just use this investment calculator provided by EPF’s official website.
Also, you may only invest through EPF-appointed fund management institutions. Check out this list of approved institutions for unit trust funds.
Should you invest with your EPF money?
After finding that you are eligible, should you then ‘play around’ with your EPF money?
Can you risk losing a guaranteed dividend pay-out (with an average of 6% to 7% annually) for the sum you have withdrawn?
After all, depending on the risk level, some unit trusts will not guarantee your capital or an earning on your investment.
This means that you can lose the money invested in the unit trust.
Thus, whether you should or should not invest with your EPF money depends on your level on your investment savvy, your investment goals, and risk appetite.
- If you are knowledgeable about unit trust investments, can spend time monitoring your funds’ performance and can afford to make subsequent investments, then you might want to consider this option.
- If you are completely in the dark about investments and don’t have the time to learn or monitor the investment performance, do think twice before investing.
3. Private Retirement Scheme (PRS)
What is it?
This pension scheme is voluntary, where you don’t have to make contributions regularly. Although, it is recommended that you do so, in order to meet your investment goals.
So if you are looking for an affordable, convenient, tax-deductible way to save for retirement, you might want to consider the PRS.
Saving with the private retirement scheme can also help you save more in term of taxes as it does include a tax relief of up to RM3,000.
Moreover, earnings gained from funds are not taxable.
Who is it for?
Anyone aged 18 years and above.
Other things to know about PRS
Unlike EPF, the PRS does come with risk, and earnings are not guaranteed.
However, there are varying risk options to cater your appetite with lower risk instruments as well as more aggressive options.
To get started with a PRS, you can enrol online at the Private Pension Administrator (PPA) website.
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