EPF's contribution: How many Malaysians work until 55?
I have been hearing a lot on many Malaysians do not save enough for old age. According to the latest report, only 22% of people will actually have more than RM196,800, the minimum amount required to retire. This is assuming that many do not have savings elsewhere.While I do see that many in Malaysia do have challenges post-retirement, but some of the numbers that are provided does not really reflect what may be the actual situation.
I am just wondering how many of the EPF's contributors in the list that are active (meaning have yet to fully withdraw their EPF money) are still active contributors towards the EPF fund? Most people will fully withdraw when they reach 55 years of age, but by the time they withdraw their money, were they still actively working. They may be working but may not be contributors anymore as they are probably working for themselves and do not need to contribute towards the fund.
To answer some of those I have put up a hypothetical calculation. Assuming a person works for 32 years from age 24 to 55. If that person retires in 2014 (last year), this means that he started work from 1983. Below are the EPF's rates from 1983 to 2014.
The table above shows the historical contribution by EPF over the last 32 years. On average, the percentage contribution over the period is 6.737%. If I were to take one of the lowest earning individual and take below assumption:
- he started with salary of RM450;
- his EPF contribution is according to statutory rate i.e. 11% employee, 12% employer;
- increment per year 3.5% - which is minimal. This means not much promotion at all;
- he does not get any bonuses;
- he does not stop work at any point of time;
- started work at age 24 and retires at 55;
- average EPF earned 6.737%.
What
would be the savings in his EPF by the time he retires at age 55? See
below. He has RM196,752. This number is very close to the one that was
the amount needed for one's retirement as proposed by EPF.
Now,
remember my assumption is quite conservative - i.e. no bonuses, no
promotion with increment of 3.5% per year. The person started with
salary of RM450. Note that by the time he retires at 55, his final
salary would be RM1307.
While EPF provides some
data which tells that many Malaysians do not have enough in their EPF
savings to retire, I am just wondering whether these can really be
applied overall in general...
While I do not
have all the facts, I would think that many Malaysians either have
stopped contributing to EPF after certain age and do not do this until
55 or along their working life, they may be working in areas which they
do not contribute anymore. They may also have withdrawn a substantial
amount for housing, health, education etc. along the way. But those that
can be withdrawn are now in Account 2 and they only comprise of maximum
30%.
In any case, I am still questioning the
data that was presented as the database I think is based on all the
people that have EPF account - and that could be many as long as in
their working life they are required to open an account.
We
also know that about 10% of working Malaysians actually pays individual
income tax - it does not seem right. Those numbers could also mean that
there are a group whom may not declare their actual income. I would
like to be proven wrong.
Note:
The tools that I have used are all available from the net.
http://www.intellecpoint.com/
