The Prime Minister of Malaysia has announced the launch of the anti-epidemic withdrawal plan "i-Lestari" of the EPF account 2. Starting from 1st of April, in addition to reducing the EPF contribution rate from 11% to 7%, those people who are eligible could apply the withdrawal of a maximum of RM500 from their EPF second account for daily expenses or emergency purpose.

"Everyone says that this is their future money, how much would it lose if they are used up?"

"If you have decided to withdraw it, how much is the appropriate figure?"

"And now I has been reducing 4% for my monthly EPF contribution, should I apply for the withdrawal?"

Most of the people will struggle and could not clarify that what is the best way for them when making such financial decision. So, we have summarized 7 factors to help you make the decision whether to apply the withdrawal.


First of all, I think everyone knows that although the EPF is one of the category of social security, but actually it is your own money, and it is not given by the government. This is also the guaranteed capital fund of "4 Accounts of Standard & Poor Family Financial Management". When do you need more of the fund? The one in young stage or old stage?





On 22nd of February, KWSP announced that the dividend for year 2019 is 5.45%. Let's take a look at the dividend payout records for the past 20 years, which is about 5% to 6%, and the compounding annual interest rate of EPF after year 2000 is 5.6%. Therefore, to do the following projection, we will assume that the future EPF return rate is 5.6%.


If you do not withdraw RM500 monthly from the EPF account 2 in year 2020, then the RM6000 of this year will earn 5.6% interest which is RM336. In the next year, the principal amount of RM6000 plus the interest earned of RM336 can earn another 5.6% interest, which is equivalent to amount RM354.80, and the account value increase to RM6690.80. If the compounding interest is 5.6% every year, RM6000 will increase to RM17841.43 in 20 years later.



It means, the withdrawal of RM6000 in this year is very likely to become RM17841.43 in 20 years later; in this way, your pension fund will be reduced RM17841.43. In other words, if you spend RM6000 today, the cost of opportunity you would pay is RM17841.43.


The first factor of consideration is return. The more appropriate term to use at here is 『Cost Of Opportunity』


If your income has dropped sharply due to the impact of the epidemic, and causing you in difficulty of paying the basic monthly living expenses, you should apply the withdrawal of the fund from the EPF account 2 to use it first! Otherwise, if you starve to death? You can't wait until retire.


 Amy earns RM3000 per month. After deducting loans and investments, her monthly expenditure is RM1350. She has no any savings currently.



After agreed with the company's unpaid leave policy, Amy's monthly income has dropped to RM2250. Even if all investment is suspended, she has only RM1042 can be spent on monthly living expenses. If the EPF funds of RM500 can be withdrawn, this problem can be solved easily.


If her company's financial situation become worse and a 50% of salary reduction is required, now the withdrawal of EPF funds of RM500 is not enough for her, she must be temporarily suspended to repay her car loan.



Her colleague, Jack from the same department also has a monthly income of RM3000, has the mortgage loan of RM1200 and do not have any savings.


With a 25% of salary reduction, living expenses is slightly reduced from RM920 to RM892.50, but now his salary is not enough to pay up the car loans. In the meantime, he could choose to use the EPF funds of RM500 to repay the car loan.



If the salary reduction is 50%, the mortgage loan will have to be suspended. At this time, he can withdraw the EPF funds of RM500 and save it temporarily, and can pay back the monthly mortgage loan of RM1200 in every 3 months.


If you save money regularly, and save in account that can be withdraw at any time, then you may not have to withdraw the funds of the EPF now. This is the emergency fund from "4 Accounts of Standard & Poor Family Financial Management" comes in handy.



What if the government hospital no longer affords for the patients who have coronavirus, and need helps from the private hospitals, how can you afford for the expensive medical expenses without a medical card? Is your credit card having a million-limit? Everyone having financial difficulties when economy depression, anyone will lend you the money?

This is a very important life-saving money！

Even if the interest rate is only 1% higher, you have to fight for it, the economy depression would not be sustained for long time. In order to increase the value of the account, it may take for 10, 20, 30 years for savings. As the time goes on, the impact of compounding interest getting stronger. This is the "effects of compounding interest" in which interest keeps rolling.




 
If your retirement fund is ready enough for your retirement life, you may also use the funds of the EPF account 2.

One point to take note is how long time is your pension plan can last? According to the research, our life expectancy will reach 100 years old in the future. The days without any income may be as long as 40 years!

Retirement planning is important in our generation. Even if we want to rely on our children, but how many of them are ability?



The industry you work in has a very significant relationship with your income and cash flow for the coming year

As an employee, you may worry about how long will the company reduce pay, will it lay off staff and I’m the one, will the company just send a message to me and tell me not to come back to work as company has shut down?Is it time to consider changing jobs?


As a boss, is the industry in a good condition? How many employees’ salary can be paid off? When the payment can be collected? Need to downsize? Or just simply shut down the company?

Take a look for this Industry Survey，if there are uncertainty of your industry, just hold the RM500 per month in hand first.



If you are still feeling unsure after look at our analysis, you can contact us. You can also look for us if you need an excellent financial planner like us to help you to customize financial plan that fit to you.