Now that you’ve got your first job and are well on your way to earning the big Ringgits, it sounds like a good time to check off your wishlist. New shoes, the latest smartphone, perhaps even indulging in something branded?
While these sound like great purchases and investments for your lifestyle, unfortunately, the reality is that they’re all short-term pleasures. It’s only a matter of time until a newer, sleeker product is released, and then you’ll be spending your hard-earned paycheck on it!
Instead, what if you could invest in something long-term that would provide value for you in the future? Not just in the next 10 years, but even 50 years later when you’re ready to retire and live your life.
When you receive your first paycheck, you’ll notice that a portion of your salary has been deducted for Employees’ Provident Fund (EPF) or Kumpulan Wang Simpanan Pekerja (KWSP) contributions.
EPF is a retirement savings fund that ensures your financial well-being when it’s time to retire. As an employee, you will need to make a mandatory contribution of 9% per month, deducted automatically.
PropertyGuru Tip
The EPF minimum contribution rate has been reduced from 11% to 9% until June 2022 to increase money in the hands of Malaysians amidst the COVID-19 pandemic.
At the age of 60, which is the official retirement age in Malaysia, this is where your EPF savings will come in handy. When you retire and say goodbye to work, your EPF is now your new source of income for all your needs.
Why You Should Grow Your EPF Savings?
Rainy days are unpredictable. One minute it’s sunny, the next, a thunderstorm. Just like how we can’t accurately predict the weather, it’s difficult to predict if you’ll need extra emergency funds later in life.
Hence, instead of spending on lifestyle quick fixes like your everyday boba, avocado toast, or the latest gadgets, consider putting those Ringgits into your EPF savings instead!
1) Prepare now for your retirement
If the thought of early retirement has ever crossed your mind, that’s even more initiative to build your EPF savings. When you’re finally ready to retire, you’ll be ensured sufficient funds to tide you over.
In Malaysia, the minimum targeted Basic Savings for EPF members is RM240,000 upon the age of 55. Based on the average Malaysian’s life expectancy, this amount is considered sufficient to support your basic needs for up to 20 years after retirement.
Bear in mind that this amount is a guideline for your basic needs and does not include lavish spending. If you intend to keep up your monthly fine-dining agendas when you retire, plan and make sure you have enough funds in your balance.
2) Can be used for your home
For property, you are eligible to make a partial withdrawal from your EPF savings to service your home loan, purchase a home, increase your loan eligibility limit, reduce your housing loan balance, and more.
Given that home-ownership is something everyone dreams of, your EPF savings could be a financial help to materialise your dreams. Not only are you using your own money, but there’s also reduced financial pressure in the long run.
5 Ways To Grow Your EPF Savings
A common misconception about EPF savings is that, since the amount is deducted from your official salary, the only way to increase it is by earning more and growing your paycheck.
While that is true, fortunately, you can contribute to your EPF in more ways than one.
1) Self-contribution
That’s right! You can self-contribute to your EPF savings on top of your existing mandatory monthly deductions. This method works for both those who are formally employed and who run their own businesses, such as full-time freelancers.
While there is no minimum contribution amount, there is a maximum of RM60,000 per year. Considering that EPF dividend rates are usually higher than bank fixed deposit rates, you’ll be getting more bang for your buck with this investment.
Requirements:
- Malaysian citizens and/or Permanent Residents.
- Registered EPF member.
2) i-Invest
Besides contributing to your EPF, you can invest in it too! Under the Members Investment Scheme (MIS), members with sufficient savings can transfer a part of their Account 1 funds to appointed Fund Management Institutions (FMIs) for investments.
However, only 30% of the excess amount required for Basic Savings can be withdrawn and invested, and it depends on your age as well. For example, here’s how much a 27-year old member would be able to invest:
- (Balance in Account 1 – Basic Savings) x 30% = Investment Amount
- (RM33,206 – RM24,000) x 30% = RM2,761.80
Hence, the maximum amount for EPF investment would be RM2,761.80. The minimum withdrawal amount is RM1,000, so if you have not reached that investment amount threshold yet, you won’t be able to invest.
Requirements:
- Malaysian citizens, Permanent Residents, or non-Malaysians registered as EPF members before 1 August 1998.
- Aged below 55 years old.
- Has sufficient savings with EPF.
- Applications over the counter, FMI agent, or i-Akaun member.
3) i-Saraan
Through i-Saraan, members who are self-employed, or do not earn regular incomes, can make voluntary EPF contributions and enjoy an additional 15% contribution from the government (maximum of RM250 per year, for members below 60 years old only).
Ideal for gig workers, there is no minimum limit to contribute through i-Saraan, and members will earn an annual EPF dividend on their retirement savings, plus an RM2,500 death benefit.
Requirements:
- Malaysian citizens.
- Registered EPF member.
- Self-employed individuals.
- Aged below 60 years old.
- Opted to contribute under i-Saraan by submitting Form KWSP 16G(M).
4) i-Suri
For full-time housewives who do not receive any income or fixed income, their financial situation can be a little tricky. Luckily, the Kasih Suri Keluarga Malaysia KWSP incentive empowers them in the form of i-Suri.
Under the i-Suri EPF contribution, housewives will be able to receive a government contribution of RM480 per year, an annual EPF dividend, plus incapacitation and death benefits.
The minimum contribution is RM5 per month or RM60 per year into one’s EPF account and can be contributed by the wife or husband to an eligible spouse.
Requirements:
- Malaysian citizens.
- Aged below 55 years old.
- Wife of Head of Household (HOH) or female HOH.
- Registered in the National Database on Poverty (eKasih) as of 30 November 2021.
- Must contribute a minimum of RM5 per month or RM60 per year into the EPF account.
5) Increase your statutory EPF contribution rate
Although the employees’ mandatory contribution rate is 9%, you can choose to increase it to grow your EPF savings even more!
If you missed the opportunity to change your contribution rate, you can fill in Form KWSP 18A (AHL) and submit it to your employer as a request.
Unlike the national lottery, an investment in your EPF savings is a sure-win to ensure you’re well-protected and financially secure for the future.
Aside from using your EPF for a home, you can also choose to make a partial withdrawal for your or your kids’ education or to cover medical expenses.
Using your EPF savings as a rough guide to help you own a home, you can factor it in when it comes to calculating your affordability. Nothing is certain, so make wise decisions for you and your family’s future!
Relevant Guides:
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