KUALA LUMPUR: Malaysians need to earn more than the minimum wage if they are to meet the Employees Provident Fund's (EPF) new benchmark of basic savings requirement of RM390,000 by the age of 60.
This was among the findings by financial experts following EPF's announcement of its retirement savings benchmark unveiled yesterday based on its Belanjawanku Guide 2024/2025.
UCSI University Malaysia Associate Professor of Finance Dr Liew Chee Yoong said a 25-year-old individual must begin with a monthly salary of RM2,010.63.
This calculation assumes a four per cent annual EPF dividend rate, a one per cent annual salary increase and a 23 per cent total EPF contribution rate — 11 per cent from the employee and 12 per cent from the employer.
The current minimum wage is set at RM1,700, which will be enforced starting February next year.
Liew, who is a research fellow at the Centre for Market Education said accounting for contributions, withdrawals and dividends, the average EPF savings for Malaysians at 60 is expected to hover around RM250,000 to RM300,000 for most contributors.
"If the benchmark is increased, individuals may need to earn higher salaries or save more aggressively.
"This could mean sacrificing discretionary spending or delaying major life events like buying a house or starting a family, which can lead to a population decline.
"Additionally, people may feel compelled to pursue higher paying jobs or take on additional roles, leading to increased stress and reduced work-life balance.
"Furthermore, achieving a higher benchmark might require individuals to explore higher risk investment options, which carry the possibility of financial losses."
According to EPF's Retirement Income Adequacy (RIA) framework, a single senior person in the Klang Valley needs to have at least RM650,000 saved to enjoy a reasonable quality of life post-retirement.
The amount is to sustain for 20 years after retirement.
The number is based on the Belanjawanku Guide 2024/2025, which suggests that an individual will need a monthly income of RM2,690 upon retirement, at current prices.
This amount will cover necessities such as food, housing, healthcare, transportation, utilities, personal care, social participation, discretionary expenses and one-off purchases.
The updated guide builds on the foundation of the previous editions, reflecting the current cost of living and offering Malaysians a reliable and practical reference to plan their budgeting effectively.
The RIA framework outlines, basic, adequate and enhanced savings requirements for retirement at the age of 60.
According to the framework, based on current prices, a retiree at 60 will need RM390,000 to cover essential retirement needs, RM650,000 for a reasonable standard of living and RM1.3 million for greater financial security and independence for a higher quality of life.
The three-tier framework will come into force in 2026.
EPF chief executive officer Ahmad Zulqarnain Onn said up to October this year, only 36 per cent of active formal EPF members meet the basic savings level according to age, anchored on RM240,000 at age 55.
"While this percentage may be impacted with the new benchmarks in the medium term, the adjustments are essential to help members' savings keep pace with the rising cost of living and the current retirement age in Malaysia.
"When we move (the basic savings) to RM390,000, we expect the percentage to go down a notch to 34 per cent."
He said the changes to basic and enhanced savings thresholds would be done gradually to align with related policies.
These policies include the Members' Investment Scheme, which allows members to transfer 30 per cent of savings above the basic savings amount in Akaun Persaraan to approved funds managed by fund management institutions.
Another is the withdrawal policy for savings above RM1 million threshold, which now has to be realigned with the enhanced savings and income level of RM1.3 million.
The basic savings amount will increase gradually by RM50,000 annually, over three years, to reach the basic savings target of RM390,000 by 2028.
The threshold for enhanced savings withdrawal will also be increased gradually by RM100,000 annually, over three years, to reach a target of RM1.3 milion by 2028.
To remain relevant to rising costs, the RIA savings levels will be reviewed every three years, starting in 2029, using updated data from the Belanjawanku findings.