EPF: Lump-sum or partial withdrawals at 55?

  • Search efforts for MH370 to be intensified, says Hishammuddin
    Search efforts for MH370 to be intensified, says Hishammuddin

    All efforts related to the underwater search of MH370 will be intensified in the next few days, acting Transport Minister Datuk Seri Hishammuddin Hussein said today. “The JACC has narrowed the search area and it’s imperative that we focus on this now,” Hishammuddin said at a press conference today. “Today and tomorrow are imperative to... …

  • Penang to rename Jelutong sea front ‘Karpal Singh Drive’
    Penang to rename Jelutong sea front ‘Karpal Singh Drive’

    GEORGE TOWN, April 19 — A newly-built park facing the sea along Jelutong here will be renamed after the late Karpal Singh, Lim Guan Eng announced today. The Penang chief minister said the... …

  • Underwater search for MH370 to be completed in 5 to 7 days, say Australian officials
    Underwater search for MH370 to be completed in 5 to 7 days, say Australian officials

    Australian officials supervising the search for missing Malaysia Airlines flight MH370 told Reuters today that an underwater search for the black box recorder based on "pings" possibly from the device could be completed in five to seven days. A US navy deep-sea autonomous underwater vehicle (AUV) is scouring a remote stretch of the Indian... …

  • Young Karpal was curious and had claws, says brother
    Young Karpal was curious and had claws, says brother

    GEORGE TOWN, April 19 — The “Tiger of Jelutong” who shook his adversaries in Parliament and court had been a “brilliant” child who had no qualms about showing his claws and fangs even to family.... …

  • Penang to rename road to honour Karpal
    Penang to rename road to honour Karpal

    Penang Chief Minister Lim Guan Eng today proposed that the IJM Promenade in Seri Pinang be renamed to Persiaran Karpal Singh, in honour of the late DAP leader who died in a road crash last Thursday. Announcing this to reporters at Karpal's house along Jalan Utama, Lim said renaming the road was a fitting way to honour the veteran lawyer and... …

  • He was our role model, our hero, say Karpal’s sons
    He was our role model, our hero, say Karpal’s sons

    As the patriarch of a close-knit family, Karpal Singh was a devoted father and grandfather, his sons said. Jagdeep Singh Deo, 43, recalled that when he and his four siblings were growing up, his father’s legal and political careers took up so much of his time that he was hardly at home. So whenever the family was together, it was truly... …

KUALA LUMPUR: Upon reaching 55, most people prefer to withdraw all their savings in the Employees Provident Fund (EPF) but more and more people are opting for flexible withdrawals (partial or monthly payments).

According to the EPF, last year, 235,931 employees made withdrawals at age 55 and 70% of the withdrawals were full withdrawals. The number of flexible withdrawals increased by 41.67% to 82,690, compared with 2009.

Choosing between withdrawing a lump sum and making a partial withdrawal depends on many factors. Financial planners say you can ask five questions when crunching the numbers for your retirement plan, not at 55. 

1) What is your behaviour towards money?

Your EPF savings can be the single largest disbursement of money you will see in your lifetime. “It is something that most individuals look forward to throughout their working life. It gives them a sense of fulfilment when they receive it since they believe that it is then possible to achieve their life goals,” says K Gunasegaran, founder and licensed financial planner of Wealth Street Sdn Bhd.

If you are quick to spend money without a plan, think twice before withdrawing the whole. “Those who are not used to having large sums of money tend to get emotionally charged. It can lead to splurges on big-ticket items such as luxury cars. While the money is rightfully yours and it is not entirely wrong to benefit from your retirement savings, be aware of the consequences. If you know that you are an emotional spender, it is best to drop the idea of a lump-sum withdrawal because you have to make smart choices with the money,” says Gunasegaran.

2) Can you generate higher returns at a higher risk?

The primary concern of retirees is whether their retirement savings can sustain them throughout their golden years and generate sufficient returns to outpace inflation.

Headline inflation, as measured by the Consumer Price Index (CPI), increased to 3.3% on an annual basis in May, according to Bank Negara Malaysia (BNM). From 2005 to 2010, the average inflation rate in the country was 2.77%, reaching a historical high of 8.5% in July 2008 and a record low of –2.4% in July 2009.

For the past 59 years, from 1952 to 2010, the EPF has declared annual dividend rates of between 2.5% and 8.5%. In the past 10 years, the highest dividend payout from the EPF was 6% in 2000 and the lowest dividend payout was 4.25% in 2002. “If you are conservative and expect the EPF to continue providing decent annual dividends, opt for flexible withdrawals,” says Wong Keng Leong, practice manager and licensed financial adviser representative at Standard Financial Planner Sdn Bhd.

Headline inflation, however, is not necessarily a reflection of the rise in a household’s real cost of living. This means that the returns on your retirement savings should far exceed the reported CPI figures.

“Also, the EPF promises a minimum dividend of 2.5% per annum. If you think that you or your financial adviser or fund manager can surpass the average returns made by the EPF, consider a lump-sump withdrawal to boost your retirement nest egg,” says Gunasegaran.

When doing so, observe the associated costs such as sales charges or management fees levied by the financial professionals and financial institutions. If you decide to retain your retirement savings with the EPF, there will be a small charge that differs from year to year.

3) Would you still be paying debts at age 55?

If you will still be servicing high-interest debts at age 55, consider using your EPF savings to pare down or settle the loans. This is especially so if the interest levied is higher than the returns generated by your savings.

“High-interest debt includes credit cards [interest rate ranges from 13.5% to 17.5% a year] and personal loans [interest rate ranges from 8% to 12%]. Holding any of these debts negates any investment gains unless you are able to get superior returns on your investment over the years. Withdrawing your retirement savings, be it in a lump sum or partially, to settle your high-interest debt is a smart option but ensure that there is still some money left for your retirement, says Wong.

There is no fixed rule on how much debt you should settle. “How much you should pay off depends on the quantum of your savings. Also, it is good to check whether your debt can be restructured to reduce the interest you have to pay. If so, evaluate the financial benefit of settling this debt with a lump sum withdrawal of your EPF savings,” says Gunasegaran.

4) Do you want to control your retirement funds?

Contributors have little control over how their savings are managed and invested by the EPF, which has sole discretion on how to invest the money that they receive and the dividend (over the minimum amount guaranteed) to declare.

“If you want to take full charge of your retirement savings [either on your own or with professional help], you can do so at 55. When you take a lump-sum payment, you are able to invest in investments that may not be available to you if you were to retain your savings in the EPF [withdrawals can be made to EPF-approved local equity funds],” says Wong, who observes that most of his retired clients withdrew all their EPF monies at 55 as they were comfortable with managing their own money.

A key benefit of withdrawing your retirement savings in a lump sum is that it allows you to expose your loved ones to managing money with a long-term perspective. “At the point of death, most of us will not want to leave a large sum of money to loved ones who cannot manage it. In all likelihood, the money will be spent sooner than planned. Withdrawing your retirement savings in a lump sum at the point of retirement allows you to slowly educate your young-adult children on how to manage a big sum of money. Let them know where you keep your savings and what you are doing with it. This is an alternative to receiving a lump sum from the EPF when you are no longer around,” says Gunasegaran.

5) Do you have a plan to access your money?

If you are 55, under the EPF’s monthly payment withdrawal scheme, the board will transfer the total amount into a special account and put monthly payments into your bank account.

If you opt for a lump-sum withdrawal, how will you draw down your money to fund your lifestyle? There are two options to evaluate. Wong suggests that you should plan a draw-down strategy that includes either a quarterly or half-yearly redemption. “Note that some instruments allow you to make periodical withdrawals but may impose charges.”

On the other hand, Gunasegaran thinks that it is more advisable for retirees to put their retirement savings into annuity-like insurance plans, under which they will receive annual payments after a certain number of years.

Follow @YahooMalaysia on LINE for daily news updates.

Comments on Yahoo pages are subject to our link to Comments Guidelines. You are responsible for any content that you post. Yahoo is not responsible or liable in any way for comments posted by its users. Yahoo does not in any way endorse or support comments made by its users.

  • Karpal’s car crashed into lorry, not the other way around, says Perak police The Malaysian Insider
    Karpal’s car crashed into lorry, not the other way around, says Perak police

    Initial investigations have revealed that Karpal Singh’s Toyota Alphard crashed into a five-ton lorry in the accident yesterday that claimed his life and that of his assistant, Perak police said today. State police chief Datuk Acryl Sani Abdullah Sani also dismissed rumours and speculation that the accident was caused by the lorry crashing... …

  • Told to ‘shut up’ on Twitter, Zul Noordin lashes back at Khairy The Malay Mail Online
    Told to ‘shut up’ on Twitter, Zul Noordin lashes back at Khairy

    KUALA LUMPUR, April 18 — A feud is breaking out between former Perkasa vice president Datuk Zulkifli Noordin and Umno Youth chief Khairy Jamaluddin on Twitter. Told unequivocally by the minister... …

  • Zulkifli shoots back at Khairy in Twitter row The Malaysian Insider
    Zulkifli shoots back at Khairy in Twitter row

    Former Perkasa vice-president Zulkifli Noordin continued his Twitter row with Khairy Jamaluddin today, taking a swipe at him with a belittling tweet and telling him not to be a knee-jerk politician. Khairy, the Youth and Sports Minister, had told Zulkifli yesterday to 'shut up' after the latter had made insensitive tweets about the death of... …