Reaching a retirement savings goal of RM1.3 million may seem daunting for many Malaysians, yet financial experts assert that achieving this target is feasible with disciplined saving habits and stable employment throughout one’s career.
One crucial recommendation is for the government to consider gradually increasing the retirement age from the current benchmark of 60. This adjustment would allow individuals to accumulate sufficient retirement funds, especially in light of rising living costs and an increase in life expectancy.
Financial planner Jarvic Lau emphasizes that it is quite possible for a fresh graduate who starts working at the age of 25 and earns a monthly salary of RM2,500 to reach RM1.3 million in retirement savings. If this individual experiences a consistent annual salary increment of 5%, they could earn a final monthly salary of RM15,000 by the time they reach 60 years old.
Under these conditions, Lau explains, the individual would have a working life spanning 35 years, during which they would contribute a total of 23% to their Employees Provident Fund (EPF)—11% from their own salary and 12% contributed by their employer. Considering an annual interest rate of 6%, he points out that such long-term contributions, with no withdrawals made, could potentially yield over RM1.5 million by the end of their career.
Even when considering a possible 30% withdrawal during the accumulation phase, maintaining a balance close to RM1 million is still achievable, provided that contributions start early and remain consistent without disruption. Lau shared these insights while discussing the financial planning landscape.
Additionally, the EPF has introduced a new Retirement Income Adequacy (RIA) framework this year, presenting a three-tier system for retirement savings: adequate savings at RM650,000, basic savings at RM390,000, and enhanced savings at RM1.3 million.
Lau underlines the importance of Millennials and Generation Z beginning their retirement planning early, as many Malaysians find themselves falling short of the RM1.3 million target upon retirement. He notes that many rely heavily on their EPF funds, only to discover that their savings deplete more quickly than anticipated.
This reality highlights that while the EPF is a solid foundation, it is unlikely to be sufficient alone for younger generations who are expected to live longer and face escalating expenses in the future.
For individuals in their 40s, Lau assures that it’s not too late to take charge of their financial futures. If they continue working for another 25 years under similar conditions, they can still aim for the adequate savings target of RM650,000 by age 65. This level of savings would allow for monthly withdrawals starting at RM2,708 in the first year of retirement, with potential increases up to RM7,389 by the 20th year.
Amy Seok, a financial literacy advocate, emphasizes that those under 40 should prioritize consistent saving in their EPF accounts. This involves maintaining regular contributions, making voluntary top-ups whenever feasible, and avoiding early withdrawals unless absolutely necessary.
Seok also advises looking beyond EPF savings. She encourages Malaysians to develop good habits around long-term investments, such as engaging in unit trusts, private retirement schemes (PRS), or creating diversified investment portfolios that align with their risk tolerance levels.
Moreover, she stresses the significance of managing lifestyle inflation, minimizing unnecessary debts, and enhancing financial literacy as fundamental pillars for effective retirement planning. Seok observes that many EPF members find themselves retiring with insufficient savings, a situation attributed not only to income levels but also to poor financial practices, gaps in employment, informal job arrangements, and premature withdrawals.
"The introduction of the RIA framework serves as a crucial policy indicator aimed at fostering timely intervention, improving education, and promoting shared responsibility among individuals, employers, and policymakers," Seok remarked.
Danny Wong Teck Meng, executive director and CEO of Areca Capital, recommends that Malaysians explore additional income streams, such as part-time work or legitimate investment opportunities, to augment their retirement savings.
He advises the younger generation to adopt a mindset that prioritizes investment over excessive spending, encouraging them to cultivate an investment habit that will benefit their financial future.
On a related note, Professor Dr. Balakrishnan Parasuraman from Universiti Malaysia Kelantan suggests that the government should gradually elevate the retirement age to 62. His research indicates that retiring at 60 may be prematurely limiting due to increased life expectancy, enhanced health care access, and evolving lifestyle considerations.
According to the RIA framework, individuals categorized under the adequate savings tier should possess at least RM650,000 to ensure a reasonable standard of living in retirement. This figure is based on a recommended monthly income of RM2,690, allowing for initial monthly withdrawals of RM2,708 in the first year of retirement. For those classified under the basic savings tier, a minimum of RM390,000 is necessary to cover essential retirement expenses. To enjoy a more comfortable retirement, individuals should aim for the enhanced savings tier, which requires savings exceeding RM1.3 million—double the amount of adequate savings.
