How to ensure you have enough for retirement


AS mentioned in the previous article, it is important to ensure we have the recommended 2/3 replacement income of our last drawn salary as the monthly retirement income to continue enjoying the lifestyle we have become accustomed to.

For most of us who are employed in the private sector, EPF (Employees Provident Fund) is the main source of our retirement funds. However, the mandatory EPF contributions may not be adequate to replace 2/3 of your last drawn income. This has been reported in numerous articles highlighting the need to save more for retirement beyond the EPF contributions.

At the national level, Malaysia’s current replacement income ratio stands at 30%, compared with the 57% average for Organisation of Economic Corporation and Development (OECD) countries. With Malaysia becoming an ageing society by 2020, we need to address this issue both nationally and individually before it becomes a socio-economic problem for the average Malaysian who may not be able to replace 2/3 of their last drawn income.

What then is adequate savings for retirement? PPA’s research suggests that you will have to set aside 1/3 of your monthly income to achieve the 2/3 replacement income. While this may seem a “tall order” with current income levels and the cost of living, it is nevertheless doable and not as hefty as you think.

As Malaysians, we are fortunate to have the mandatory minimum EPF contributions totalling 23% (namely 11% from employee and minimum 12% employer contribution), you will possibly need to contribute an additional 10% or more, to make up the 1/3 or 33% savings for your retirement fund.

We are indeed fortunate to have the EPF established as the mandatory second pension pillar, without which we would all have to deal with setting aside the 1/3 savings from our monthly earned income.

With the launch of the Private Retirement Scheme (PRS) in July 2012, to address the current 30% replacement income ratio, Malaysians now have the voluntary third pension pillar to help them with additional savings to supplement their EPF.

In time, Malaysians will have two pillars for their retirement savings, with the bulk of their funds coming from EPF and the additional savings from PRS.

Given that we will have to replace our earned income when we retire, we will have to build our retirement funds to generate an income within the time frame left before retirement. The objective then is to build up our retirement funds to the desired level which can then generate a passive retirement income stream to replace 2/3 of our last drawn income.

To build up our future retirement funds, we need to pay attention to:

  • Time needed to invest in a retirement plan to accumulate the funds required to generate the income replacement.
  • Finding out how much EPF funds we have accumulated to date and other savings for retirement and what additional savings we need to make.
  • Determining the additional savings needed to make up the 1/3 current retirement contribution requirements to provide for the 2/3 future replacement income.
  • Opening a PRS account for the additional savings for potential compounding growth.

All of this needs to be addressed as early as possible before retirement dawns. The more we put off planning for it, the harder it gets as the time to save up shortens. With limited time, we will need to make even higher contributions and this will limit the compounding growth of investment returns.

It can be quite daunting to determine how much your last drawn income would be before retirement. To find out what your projected last drawn income might be based on the retirement age of 60, you can easily make the computations with PPA’s retirement calculator. Just go to and find out how much additional savings you need to make on top of your EPF.

The projected last drawn income will give you an indication of how much income you need to be able to retire and how long it will last, as well as the projected amount of retirement funds you should have in order to generate the required income.

We recommend you review this annually to reflect changes to your current income and financial circumstances.

* Dato’ Steve Ong is the CEO of the Private Pension Administrator Malaysia (PPA), the central administrator for the Private Retirement Scheme (PRS). The PPA is tasked by the Securities Commission Malaysia to promote the growth of the PRS industry, create general awareness and educate the public on retirement savings. The PPA also works to protect the interests of PRS contributors. This article by PPA first appeared in The Star Online, and PRS Youth.

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