Today, i will republished one of my short articles where I touched ion EPF and the average salary of graduates in Malaysia.
I was shocked with my findings when I first published this article back in 2016….
Firstly, in my opinion, EPF is really good and the reasons are:
- All full time workers in Malaysia are forced to save for their retirement.
- Whatever money contributed into EPF plus Dividend declared are guaranteed. Unlike other retirement funds in the western world where the retirement fund of an individual can go up and down depending on the market situation. If the market crashes when one retires, the retirement fund may not be sufficient for him/her to survive until he/she dies. Then again, will our EPF which is guaranteed to increase yearly sufficient for our retirement years?
- And best of all, the portion which employers contribute to EPF are TAX FREE!!! So if you own the company, you should make your company contribute more to your EPF. Or, for individuals earning big bucks, instead of asking for increment, ask the company to contribute more to your EPF 🙂
Here is the top average salary of Malaysians in 2014 (click here to see Malaysia Salary Guide 2019 by Kelly Services and Capita Global how much CEO and Directors earn monthly in different sectors):
From the above, after 5 years working and gaining the relevant experience, one would have attained the position of Senior Executive where the average monthly salary is about RM5.5K. By the time one has worked 10 years, he should be a Manager earning about RM10K and after 15 years (about 40 years old), he/she should be in Senior Management and earning more about RM15K.
You may be wondering why Doctors, Lawyers and Architects are not listed in the Top Paying Jobs at Senior Manager Level. You see, after working for 10 years, most doctors and lawyers would have set up their own firm/practice or become partners with the firm they are with. Some Engineers may set up their own firm/company (e.g. consultancy/construction/services) but many are salaryman simply because our country is developing and as such there are many projects on going which requires Engineers (and they get pretty good remunerations, please note above is average pay which means many get much higher).
For the purpose of this short article, I did do a quick calculation to determine how much one will have in their EPF in 30 years time based on the assumption that he/she gets 5% salary increment yearly and EPF declares dividend of 5%. Here’s the result I got (may be wrong as I just woke up and still blur but you will see the picture):
Wow! If someone starting pay is RM3500/month and assuming he gets 5% increment yearly with EPF paying 5% dividend yield, after 30 years he/she will have RM1.25m in his/her EPF account. That is assuming he/she did not make a single withdrawal to pay for his/her home or children’s education. And it can be more if he/she invested the EPF money into approved investment funds (then again, can be lower too).
So, if your spouse has Professional qualifications (e.g. a Professional Degree or Passed Professional Papers), combining the both of your EPF accounts. you guys would have RM2.5M in 30 years time.
Sounds good yeah. Here comes the bad news…..
Refer to 1st column in the table above where the monthly salary was increased by 5% yearly. What it means that if you are earning about RM15K per month in 30 years time, and assuming inflation also increase by 5% yearly, your RM15K salary is equivalent to today’s value of RM3,500!!! RM3.5K/RM15K = 0.23 or I can say your EPF of RM1.25M in 30 years will be equivalent to RM291,666 today!!!
FYI, the inflation rate in Malaysia lately was below 3%. But it can go up to 10% too. See table below where the inflation in Malaysia did touch 24%!!!
I can safely tell you that our inflation rate will rise once again together with oil price. The low petrol price we are enjoying now will not last. Even with the low price recently, a new Apple iPhone now cost RM4K+ versus RM2K+ few years ago. Yes, you are right to say that the price of a new Apple iPhone has increased because of our weak Ringgit. How sure are you that our Ringgit will not weaken further in the far future when our oil reserve runs out?
With respect to the above, what I am trying to tell you is – you better start saving for your retirement and your children’s education fund now and not delay it a single day.