Why retirement savings withdrawal should be your ‘last dip’

EPF depositors stand to lose tens of thousands of ringgit in compounding interest from the amount advanced via the i-Sinar facility


THE Employees Provident Fund (EPF) has advised depositors to seek assistance, assess their situation and consider alternatives before deciding to tap into their retirement fund.

EPF CEO Tunku Alizakri Raja Muhammad Alias said depositors stand to lose tens of thousands of ringgit in compounding interest from the amount advanced via its latest i-Sinar facility. He said an individual depositor may take years before the amount can be recouped.

“My advice is to set up an emergency budget first, assess what you need exactly and how much, what is available for you out there and what your personal savings look like. You should only go for your retirement savings only when there is a gap (to be filled),” Tunku Alizakri said at a media briefing in Kuala Lumpur recently. “Retirement savings should be the last dip.”

The EPF on Monday announced its i-Sinar facility which covers affected members who have lost their jobs, given unpaid leave, or have no other source of income.

Eligible members can start applying from December 2020, with the first crediting to take place by end-January 2021.

Those with savings of RM90,000 and below in their Account 1 have access to advance any amount up to RM9,000. The amount advanced will be staggered over a period of six months, with an increased first advance of up to RM4,000.

For those with savings above RM90,000 in their Account 1, they have access to advance up to 10% of their savings, with the maximum amount allowed capped at RM60,000. The amount advanced will be staggered over a period of six months with an increased first advance of up to RM10,000.

The EPF made several permutations from their data to give a projection on the potential amount lost from the sum taken out.


Lily, 30, Former Service Manager

The first permutation given is Lily, who is 30 years of age and has one child. She was earning around RM4,000 as a service manager before she lost her job in May 2020.

She has RM65,000 in her EPF Account 1, which makes the eligible amount she can advance via i-Sinar at RM9,000. If the amount is pulled out in full, Lily will be left with RM56,000.

The RM9,000 advance via i-Sinar would mean that she would lose out roughly RM24,000 in compounded interest on a conservative estimate if the money is withdrawn when she hits the retirement age of 55. To recover the amount, Lily would have to work an additional five years.

“Bear in mind, this is not inclusive of withdrawals made via i-Lestari. If Lily opts to withdraw another RM6,000 (RM500 for 12 months) via i-Lestari from her EPF Account 2, the compounding rate would be even greater and the time it takes to recoup the amount would be longer,” Tunku Alizakri said.

Daniel, 40, Pilot on Unpaid Leave

The second scenario involves Daniel, who is now on unpaid leave. Daniel has RM380,000 in his EPF Account 1, which means he will be able to advance a maximum amount of RM38,000 via i-Sinar.

The compounding effect on the amount pulled out by Daniel is estimated at RM68,500, as he has 15 years before he hits 55. To recover the amount lost, Daniel would have to remain employed and delay his retirement by another five years.

“So, these are the implications to recoup that same amount of money for retirement. For some, their retirement has to be stretched out. They can’t retire at 55,” Tunku Alizakri said.

“We are not saying you can’t go into it but do it with care, do it with your eyes open, and do it with rationality.”

To determine the right amount to be applied under i-Sinar, members are strongly urged to first seek financial advice from EPF’s Retirement Advisory Services and/or the Credit Counselling and Debt Management Agency.

Read our earlier report here