Phased CPF withdrawals a better option


“IF WE were to start EPF all over again, I think we should go for regular monthly payments like the pension scheme or phased withdrawals rather than having retirees take out their money in one lump sum,” says Rusma Ibrahim, the EPF deputy chief executive officer (organisational development and strategic planning).

Rusma: ‘The retirement age should be around 58 or 60’

Right now, 99.9% of the contributors withdraw their EPF savings in a lump sum once they reach 55.

And it is up to the contributors to manage that money. But sadly, EPF has found that contributors tend to go through that money rather quickly.

Their first survey shows that 70% of retirees use up all their EPF money within three years after retiring. A second survey done in 2004 shows them doing better – they managed to stretch their money up to 10 years.

But that might not be good enough given the fact that people tend to live a lot longer these days. In Malaysia, life expectancy for women is 76 years and for men 72 years, which means that after retirement they have to support another 20 years of living.

And on average, contributors have RM106,000 in their EPF account when they retire; and for a number of people the EPF is their only form of savings.

“If one reaches 55, the probability is he could live until 80 even up to 83. But you can’t stretch that RM100,000 for 30 years. It’s not possible,” says Rusma.

While the private sector is deemed to offer better salaries and perks and a lump sum in the EPF, ironically it is the civil servants who tend to have it better after retirement.

Their monthly pension, which is half their last drawn pay, assures them at least of a continuous source of income regardless of how long they live.

“A good pension scheme is one where there must be regular payment. The quantum will differ but at least you are guaranteed of something,” says Rusma.

An annuity-like scheme for EPF where retirees get monthly payments, she adds, would have “insured” people against the longevity risk “but we didn’t start off that way.”

But the EPF, she points out, is only one source of savings. Ideally, there should be a multi-pillar system where one can rely on other sources for retirement income.

“This is something there has been discussions on. The Government can provide the policy but the market has to respond by coming up with private pension or annuity schemes for those who can afford it,” she adds.

Another way is to continue working for as long as possible. Rusma believes 55 is much too early to retire given the fact that people are still active and productive at that age.

“Going by the life expectancy, the retirement age should be around 58 or 60. It would make a lot of difference accumulating savings for another five years.

“Even in developed countries, people are talking about how to make people remain in employment for as long as possible,” she adds.

In Malaysia, because of the extended family support system, parents tend to think that “worse comes to worse” their children will take care of them and tend not to look at retirement as a problem.

“But like it or not, this support system is breaking down because of lifestyle changes. People are getting married later and having fewer kids. The children may be working in the city and parents are back in kampung and this physical distance contributes to the problem,” she says.

Rusma points out that planning when to get married and when to have children too are part and parcel of financial planning as these impact on one’s retirement.

“Ideally, when you retire, you should have settled your liabilities. If you had planned properly, your house and car should have been paid up and your children should have finished their education and should have started working, otherwise they would be a burden on you.”

And with inflation and medical costs going up, Rusma cautions, holidays after retirement have to be sacrificed.

“That’s only for the well to do. That’s the reality. Of course all of us have dreams. I have that dream too to go off to South Africa after retirement. But can I afford it? That’s the reality.”

So her advice is for people to continue working as long as they can be productive, to stay healthy and to start saving from young to take care of the future.

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