Why should you take your retirement savings off autopilot?

Twenty years

Is essentially how long you can expect to spend in retirement if you retire at 60, according to data published by the Organisation for Economic Co-operation and Development (OECD).

The question is, can your retirement savings last that long?

For many Malaysians, the answer is probably ‘no’. Most leave their retirement planning on autopilot mode – that is, they don’t give it any thought and instead rely on their Employees’ Provident Fund (EPF) savings to fund their retirement.

However, two out of three EPF members aged 54 have less than RM50,000 saved. And alarmingly, half of EPF members over the age of 55 exhaust their savings within five years.

It’s not enough to save just with EPF

The general rule of thumb is that you’ll need two-thirds of your last drawn income to maintain the same standard of living you have pre-retirement. Meaning if you earn RM7,500 a month during your last year of work, you’ll need RM5,000 a month when you retire – otherwise, you’ll have to downsize your lifestyle. EPF’s Belanjawanku expenditure guide estimates that an elderly couple living in the Klang Valley (in 2019) will needs RM3,090 a month  for a “reasonable standard of living”.

If you happen to be a young adult today, how much would you need to retire?

Let’s take the example of Salmah. She’s a 22 year-old fresh graduate who earns a RM2,500 monthly salary. She’d like to retire at 60 and have her retirement fund last until 80.
According to Private Pension Administrator Malaysia’s (PPA) retirement calculator, if Salmah has an annual 3% salary increment until the age of retirement, she would accumulate RM974,641 in EPF savings by the age of 60.
However, she would need RM1,095,360 to retire on two-thirds of her last drawn salary. If this sounds like a lot of money to you, just remember that this is 38 years into the future, and assuming a 3% annual inflation, this is equivalent to only RM389,815 today.
Salmah’s EPF savings may not be able to sustain her 20 years of retirement. And if along the way, if she decides to use her EPF savings to pay for housing, medical bills, Hajj or education, she would have an even greater shortfall.

This goes to show that while EPF does its best to support your post- retirement life, simply relying on it alone isn’t enough – you may need to take your retirement savings off autopilot.

Boost your chances of retiring comfortably with EPF i-Invest

Generally, there are two ways to boost your chances of a comfortable retirement – either save more, or make your savings work harder.
i-Invest, EPF’s new online investment platform, can help you with the latter.

This platform, which was launched in August 2019, allows you to enhance your retirement savings by placing part of your EPF balances in approved unit trust funds. This gives you the opportunity to potentially grow your retirement portfolio at a greater rate.

How do you choose which unit trust funds to invest in?

Pleased be informed that while investing your EPF savings can potentially grow your portfolio at a greater rate, these returns are not guaranteed. Unit trust funds can even deliver lower returns than EPF.

That is why it’s important to evaluate each unit trust fund before you choose to invest.

One way of evaluating a fund is by looking as its annualised return-the fund’s average return per year, over a period of time. You can find this metric by looking through our Fund Performance available for each of our funds.

For example, here are the annualised returns of some of our top-performing funds:

Unit Trust Funds 7-year Annualised Return
CIMB-Principal Greater China Equity13.56%
CIMB-Principal Global Titans 12.95%
Principal Islamic Asia Pacific Dynamic Equity7.35%
CIMB-Principal Asian Equity10.56%
CIMB-Principal Asia Pacific Dynamic Income 11.87%

In 2019, our funds won two awards for being the ‘Best Performing Fund’ conferred by Lipper Fund Awards from Refinitiv 2019;

  • CIMB-Principal Global Titans Fund [Equity Global - Malaysia Pension, 5 years]
  • CIMB-Principal Equity Income Fund [Equity Asia Pacific ex Japan - Malaysia Pension, 10 years]

Of course, while past returns is not a guarantee of future results, it can be a helpful indicator to evaluate how well a fund is performing.

Put your portfolio into overdrive by eliminating sales charges.

When investing in unit trust funds, you’ll also need to look out for sales charges – otherwise, they can eat into your portfolio returns over time!

For a limited time, you’ll incur 0% sales charges when you invest in Principal’s unit trust funds via EPF i-Invest.

Here’s an illustration of how sales charges can affect your portfolio growth:

Sales Charge0%0.5%3%5%
Initial capitalRM 5,000RM 5,000RM 5,000RM 5,000
Year 1RM 5,400RM 5,373RM 5,238RM 5,130
Year 10RM 89,886RM 89,436RM 87,189RM 85,391
Year 20RM 272,284RM 270,922RM 264,115RM 258,670
Year 30RM 666,068RM 662,737RM 646,086RM 632,764
Effect of fees after 30 years*RM 0RM 3,331RM 19,982RM 33,304

*Assuming an initial capital of RM5,000, an annual contribution of RM5,000 and an annual return rate of 8%
A small sales charge like 3% might not seem like a lot of money, but it can cost you tens of thousands of ringgit over decades!

How to get started

Investing with Principal through EPF i-Invest is easy. Just follow these five simple steps:

1.    Register and activate i-Akaun (this is where you can access your EPF account online) 

On buy screen, select Principal & your choice of fund(s).

•    Get a temporary user ID and password from your nearest EPF office/kiosk
•    Head to the ‘Member Login’ section on EPF’s website and use the temporary User ID and password sent via SMS to activate

2. Login to i-Akaun and select ‘Investment’ on the top menu bar
3. On buy screen, select Principal & your choice of fund(s)
4. Select Principal as your preferred FMI (Fund Management Institution)
5. Confirm your transaction

Taking your retirement savings off autopilot involves certain risks. However, if you’re ready to take control of your nest egg, investing your EPF savings could potentially net you higher returns, helping you reach your retirement goals.


This article was adapted from the original write-up in iMoney.my.