The Covid-19 pandemic has caused economic and social disruptions. Many have lost their jobs, and more are at risk of falling into poverty. In April this year, the EPF introduced the i-Lestari scheme which allowed contributors to withdraw RM500 per month from Account 2 for a period of 12 months.
More recently i-Sinar was introduced to allow withdrawal of up to RM9,000 or 10% from their Account 1 EPF savings up to RM60,000. The move is to help alleviate the financial burden of certain groups and to assist those who had lost their jobs consequent to the Covid-19 pandemic.
So, the question is should you touch your EPF savings?
If the amount withdrawn is to be used to meet the daily needs then it is fair. It could serve as a temporary relief for a wage earner who has lost his job and does not have other source of savings. The argument is, after all, it is your own money, whether it is to be spent now or later, it is your choice.
Yes, it is your money, but you must ask yourself if you truly need it now? Do you need to break into your piggy bank?
Are there other alternatives?
You can perhaps re-examine your monthly expenses to focus only on your needs and not wants. Shopping during sales promotion for example during the 11.11 Singles Day should be avoided to stop yourself from buying unnecessary items although they may be on huge discount.
If you can reduce your monthly expenses, you may be able to sustain your savings for several more months. For example, if you have RM12,000 savings (existing cash or assets), and if you can reduce your monthly expenses from RM2,000 to RM1,500, you can then stretch your savings to for eight months instead of just six months.
If you are in a critical situation, it is also advisable to visit your Bank to apply for the targeted moratorium. You may negotiate with the Bank to reschedule and restructure your loan financing.
You can also seek advice from the Credit Counselling and Debt Agency, or commonly nown as Agensi Kaunseling dan Pengurusan Kredit (AKPK). The agency assists individuals and business owners to review, restructure and manage their finances wisely.
If you are able to resist and plan not to touch your EPF savings, you may enjoy the following benefits.
Value of money continue to grow
If the eligible amount of RM6,000 from i-Lestari and RM9,000 from i-Sinar, are not withdrawn from your EPF savings, the money will continue to be compounded with dividends declared annually from EPF. The below projection is with assumption of annual dividends of 5%.
Having more during retirement
This means that you would have more savings during retirement.
The average life expectancy for Malaysians is 76 years old. This means you would still need income for another 16 years after retiring at age 60. This is not a short duration, and we need to ensure that we have enough savings to sustain and not be left penniless during our retirement years. Thus, you have, to be responsible for your financial situation and plan your savings and expenses well.
The amount taken out from Account 1 under the i-Sinar facility have to be topped up. All future EPF contributions will be credited 100% to Account 1 until the amount advanced is replenished. This means you would have less from Account 2 to fall back on should you need the money to pay for your housing loan, education or medical expenses.
In summary, any fund withdrawals from the Employees Provident Fund (EPF) should only be considered as a last resort to ease your financial burden. It should not be taken out if there are still other sources of income.
This is because if there is excess cash, there is a high potential that all will be spent. This will result in lower retirement savings in the future. As the saying goes, let’s endure the short-term pain to enjoy the long-term gain.
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