LETTERS: Imagine yourself at 60 years old.
Most Malaysians have a life expectancy of 75. That's 15 years of your life requiring financial sustenance without a pay cheque.
A bare bones budget of RM1,500 a month requires you to have RM270,000 to support yourself till 75.
This amount balloons if you have the blessing of a longer life or require medical treatment.
As you imagine your future self, where would you get this money? How would you survive if not for this savings that you are building now?
It's important to understand that at the Employees Provident Fund (EPF), your money grows over time on top of the amount you put in.
Say you put RM100 in your EPF account in 2020. Every year, EPF will announce its dividend, and a percentage that it will put in your savings.
So if EPF announces a five per cent dividend for 2020, you will receive RM5 (five per cent of RM100) in your account. Your total savings then grows to RM105.
Fast forward to 2021. You have not added and your savings is maintained at RM105 (RM100 from your initial deposit + RM5 from last year's dividend).
EPF then announces a six per cent dividend for 2021.
Your dividend amount is not just calculated from your initial RM100, but from the present savings in your account.
So instead of earning just RM6 (six per cent of RM100), you earn RM6.30 (six per cent of RM105). This is compounding in action.
Although it may not seem like a lot in the short term, compounding will see your money grow significantly over time.
If you start your EPF at 25 and save only RM100 a month, when you reach 60, you would have set aside RM42,100.
However, thanks to compounding, your account stands at RM108,935.97 (assuming a five per cent dividend every year).
This is the amount you gain by saving and leaving your money to sit.
EPF's basic savings target is set at a minimum of RM240,000 upon reaching 55, allowing retirees a modest RM1,000 a month. But only 19 per cent of members have reached this lower threshold.
Bumiputera savings dropped by 70 per cent from RM15,500 to RM4,900 up to December 2022.
In contrast, the savings of Indians decreased by 40 per cent, going from RM25,700 to RM14,900.
The Chinese experienced the lowest reduction of only one per cent from RM45,800 to RM45,200 after the pandemic.
It goes without saying that the ones who suffer the most are the socioeconomically disadvantaged.
A person in the B40 household income category has an average savings of RM1,225, an M40 has RM25,268 and a T20 has RM260,205.
Allowing EPF withdrawals will impact the poor as they are most likely to face financial hardship and withdraw from their low savings.
They will suffer in their old age due to a lack of retirement savings.
Many are arguing that our EPF fund is our money and we should be able to do what we want with it.
But, as argued above, I propose a different view. We are not taking our own money but are stealing from our future selves.
NURUL EZZATY HASBULLAH
Rhodes scholar
Kuala Lumpur
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times