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Retirement Planning for Young EPF Contributors

How You Can Increase Your Retirement Fund Substantially

Previous System

Previously, only contributors who have more than RM55,000 in Account 1 are allowed to invest in unit trusts. For example, if you have RM55,000 in Account 1, you need to retain RM50,000 and are allowed to invest 20% of the remaining RM5,000 which is RM1,000 (the minimum investment). You cannot invest less than RM1,000 under the EPF scheme. As long as you have more than RM55,000 in Account 1, you can continue to invest a minimum of RM1,000 every three months. The condition of keeping RM50,000 in Account 1 applies to all contributors regardless of age. This rule has therefore put many young contributors ineligible to invest and have to wait till their contributions in Account 1 reaches RM55,000 or more.


Present System (effective 1 Feb 2008)

The Employees Provident Fund has recently amended its rules to allow more contributors to participate in unit trust investments, especially young contributors who are now able to invest under a schedule as follows:

Age Amount to be retained in Acc 1 (RM)   Age Amount to be retained in Acc 1 (RM)
18 1,000 37 34,000
19 2,000 38 37,000
20 3,000 39 41,000
21 4,000 40 44,000
22 5,000 41 48,000
23 7,000 42 51,000
24 8,000 43 55,000
25 9,000 44 59,000
26 11,000 45 64,000
27 12,000 46 68,000
28 14,000 47 73,000
29 16,000 48 78,000
30 18,000 49 84,000
31 20,000 50 90,000
32 22,000 51 96,000
33 24,000 52 102,000
34 26,000 53 109,000
35 29,000 54 116,000
36 32,000 55 120,000


You can see from the table above that the younger you are, the less you need to keep in Account 1 and can invest the balance x 20% every three months. One of the objectives of EPF is to allow you the option to invest some (not all) of your money so that you can achieve a higher return of your own (outside EPF) and do not have to depend on EPF dividends to grow your money for retirement.


What You Should Be Concerned With

Now that you have this option, it does not mean that you will be successful in your objective by simply investing your hard-earned money. There are always risks and uncertainties in investments and if you are not careful, there is an equal chance that you may lose your money. Some of the important questions you must ask yourself before you take this option are:

  • What funds can I invest in with my EPF money?
  • What type of risk should I take (bearing in mind I already have a risk-free return of say, 5.0% in EPF dividends)?
  • When should I start to make my money work hard for me?
  • How am I going to maximise my savings in EPF?
  • What is a good way to ensure that I do not lose my money if I invest?
  • Who can actually help me do all these?
A Licensed Financial Planner

A licensed financial planner will be able to help you:
  • Draw up a proper long-term investment plan to achieve your retirement goals.
  • Educate you about your investments and personal finance and
  • Help you to manage your financial affairs.
As licensed financial planners, we can help you prepare an investment plan that will grow your retirement money gradually over the years at returns that can exceed EPF dividend rates. For example, using the Rule of 72, you can double your money at a shorter time if the returns are higher. This means that if you have RM100,000 in EPF today and leave it there to earn an average dividend of say, 5.0% per year, your money will double to RM200,000 in 14.4 years time (72 divide by 5.0) in 2021. Alternatively, if your investment plan can produce a better annual average return of say, 8%, your money will double to RM200,000 in just 9 years (72 divide by 8) compared with 14.4. If you continue on the same momentum, your RM200,000 can become RM400,000 in another 9 years time instead of 14.4 years. This means higher returns at a shorter time frame.

Look at the table below. It shows you the end result when you invest at different returns.

The Power of Compounding

Investment Amount (RM) 100,000 100,000 100,000 100,000 100,000 100,000 100,000
Returns 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%


Age Year End Value (RM) End Value (RM) End
Value (RM)		 End
Value (RM)		 End
Value (RM)		 End
Value (RM)		 End
Value (RM)
18 1 104,000 105,000 106,000 107,000 108,000 109,000 110,000
19 2 108,160 110,250 112,360 114,490 116,640 118,810 121,000
20 3 112,486 115,763 119,102 122,504 125,971 129,503 133,100
21 4 116,986 121,551 126,248 131,080 136,049 141,158 146,410
22 5 121,665 127,628 133,823 140,255 146,933 153,862 161,051
23 6 126,532 134,010 141,852 150,073 158,687 167,710 177,156
24 7 131,593 140,710 150,363 160,578 171,382 182,804 194,872
25 8 136,857 147,746 159,385 171,819 185,093 199,256 214,359
26 9 142,331 155,133 168,948 183,846 199,900 217,189 235,795
27 10 148,024 162,889 179,085 196,715 215,892 236,736 259,374
28 11 153,945 171,034 189,830 210,485 233,164 258,043 285,312
29 12 160,103 179,586 201,220 225,219 251,817 281,266 313,843
30 13 166,507 188,565 213,293 240,985 271,962 306,580 345,227
31 14 173,168 197,993 226,090 257,853 293,719 334,173 379,750
32 15 180,094 207,893 239,656 275,903 317,217 364,248 417,725
33 16 187,298 218,287 254,035 295,216 342,594 397,031 459,497
34 17 194,790 229,202 269,277 315,882 370,002 432,763 505,447
35 18 202,582 240,662 285,434 337,993 399,602 471,712 555,992
36 19 210,685 252,695 302,560 361,653 431,570 514,166 611,591
37 20 219,112 265,330 320,714 386,968 466,096 560,441 672,750
38 21 227,877 278,596 339,956 414,056 503,383 610,881 740,025
39 22 236,992 292,526 360,354 443,040 543,654 665,860 814,027
40 23 246,472 307,152 381,975 474,053 587,146 725,787 895,430
41 24 256,330 322,510 404,893 507,237 634,118 791,108 984,973
42 25 266,584 338,635 429,187 542,743 684,848 862,308 1,083,471
43 26 277,247 355,567 454,938 580,735 739,635 939,916 1,191,818
44 27 288,337 373,346 482,235 621,387 798,806 1,024,508 1,310,999
45 28 299,870 392,013 511,169 664,884 862,711 1,116,714 1,442,099
46 29 311,865 411,614 541,839 711,426 931,727 1,217,218 1,586,309
47 30 324,340 432,194 574,349 761,226 1,006,266 1,326,768 1,744,940
48 31 337,313 453,804 608,810 814,511 1,086,767 1,446,177 1,919,434
49 32 350,806 476,494 645,339 871,527 1,173,708 1,576,333 2,111,378
50 33 364,838 500,319 684,059 932,534 1,267,605 1,718,203 2,322,515
51 34 379,432 525,335 725,103 997,811 1,369,013 1,872,841 2,554,767
52 35 394,609 551,602 768,609 1,067,658 1,478,534 2,041,397 2,810,244
53 36 410,393 579,182 814,725 1,142,394 1,596,817 2,225,123 3,091,268
54 37 426,809 608,141 863,609 1,222,362 1,724,563 2,425,384 3,400,395
55 38 443,881 638,548 915,425 1,307,927 1,862,528 2,643,668 3,740,434


OUR PROPOSAL

Let us help you:
  • Invest with an objective such as Retirement Planning (do not use your EPF money for other purposes if you can avoid, and let us help you use other avenues for other purposes).
  • Focus on this objective with a long-term investment plan (without having to take extra risk since your EPF is already giving you a risk-free return).
  • Invest regularly every three or four months as EPF permits (you are advised not to break this sequence as missing one investment can mean a substantial drop in savings and returns over a long period of time).
  • Use the strategy of dollar cost averaging to accumulate large units of trust funds and cash out when your objectives are met.
  • Diversify your investments in a few good funds in different asset class to spread out the investment risks.
  • Re-balance your investments at least once a year (we will help you to review your investments to ensure that they are on the right track to meet your objective or returns).
Call our licensed planners now for a chat. You will be surprised how we can effectively help you achieve your retirement goals.

Licensed Planner License Number Contact:
  • Mike Lee Chee Thye
    		•  CMSRL/A3201/2007 019-2236208
  • Arbayah Ismail
    		•  CMSRL/A9530/2008 019-3306241
  • Alice Ng Lai Chin
    		•  CMSRL/A9174/2008 012-3717375
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