My opinion on EPF withdrawals
Coming out of the COVID pandemic (yes, I know we’re not out of it yet) lockdowns from last year, I’ve been seeing a lot of news headlines on Employees Provident Fund (EPF) and the people’s opinions about it.
Some example of news headlines are:
- How massive withdrawal will affect markets (Article)
- Withdraw more and we’ll work till we die (Article)
- Almost half of EPF members have less than RM10k (Article)
- EPF withdrawals are a dire need for people’s survival (Article, Article)
And on and on…
What the people think
Whilst scrolling comments, I’m surprised to see a majority of people are actually arguing FOR the withdrawals. (Yes, I’m against it.. but more about it below)
- It is our money so we should be allowed to withdraw
- I can get higher returns elsewhere and retire earlier
- If I can’t survive now, it’s no use to think about retirement
- The government is simply using our money
- The money is safer with me
There are those who are AGAINST the withdrawals, too.
Objectively…
Both camps have their relevant arguments, but let’s first take a look at what EPF actually offers for its members, shall we?
(1) Dividend rates for the past 10 years ranged from 5.8% – 6.9%
(2) EPF guarantees a dividend rate of 2.5% (the last time this rate was given out was in 1950s)
(3) Investment philosophy is capital preservation and long-term stable returns
(4) Capital guaranteed (?)
(5) Investment asset classes – Malaysian Government Securities, Money Market Instruments, Loans & Bonds, Equity, Property (Check out top 30 equity holdings here). It’s composition as of Q3 2021 as follows:
(6) Withdrawals can only happen after retirement age (>55 years old)
(7) No fees involved
(8) The government does not control EPF
(9) An investment panel overseas the EPF and its members are:
It’s true that you MAY get higher returns elsewhere
But withdrawing from EPF to invest in something of higher risk is questionable.
The keyword here is also “May”. Whilst we have been getting on average 6% annual returns on our EPF savings without any risk of loss, why would one risk all that on supposedly play money investment?
People are generally overly optimistic when sh*t hasn’t hit the fan, and overly pessimistic when it does.
Don’t even get me started if anyone is going to take the path of “guaranteed return”.
I think most, if not all, portfolios would do well to have a proper and legitimate guaranteed returns asset class (which is rare in the world). Most have too much risks in their portfolio already.
Survival vs Retirement
This is a very good argument, but holds very little water in the grander scheme of things (in my humblest opinion).
Retirement funds are the final batch of funds that takes us through our last phase of life. This is when we are no longer capable of making an earning for ourselves – for whatever reason. Hence, the idea of taking out our EPF funds prior to the stage of “no longer capable of making an earning”… is alarming.
The premature withdrawal of EPF funds signify that:
- All other emergency funds and monies parked everywhere else have been depleted
- There is no longer an avenue of making income in any way
Furthermore, living on EPF funds for survivability is a ticking time bomb as the funds are limited and doesn’t generate additional income.
We see businesses pivot, employees changing jobs, people adapting to survive. Is EPF withdrawal truly the last option for those who did withdraw?
Closing Thoughts
I do not support the initiative to withdraw EPF funds for whatever reason, unless it’s a matter of life and death. And things seldom are.
Rather than thinking to survive on retirement funds before retirement, it is probably better to go out and pivot to generate income. Leave the retirement fund untouched so that it compounds on its steady returns.
I have not withdrawn and have not reduced my contribution rate. That’s my stand in this and you have to make your own decisions after considering your own circumstances.
