Employees’ Provident Fund (EPF) has introduced its Retirement Income Adequacy (RIA) Framework on 12 December 2024. The RIA is set to launch in January 2026 but some details are already released.
RIA Framework
The RIA framework allows members to set savings targets that reflect different retirement lifestyles and aspirations. This approach emphasises the importance of viewing EPF savings as a source of ongoing income, helping members to understand savings they will need to sustain themselves during retirement.
It revises the recommended savings levels from a single-tier savings benchmark to a three-tier savings framework. The three tiers are:
1. Basic Savings and Income, covering essential retirement needs;
2. Adequate Savings and Income, providing a reasonable standard of living during retirement; and
3. Enhanced Savings and Income, supporting greater financial security and independence for a higher quality of life.
Sum Recommended
Based on the Belanjawanku 2024/2025, a single elderly person requires approximately RM2,690 monthly (“Adequate Retirement Income”) to maintain a reasonable standard of living in retirement.
The new three-tier RIA Framework will be anchored on the Adequate Retirement Income as determined by Belanjawanku from time to time (it will be reviewed every three years, starting in 2029). The framework encourages a monthly drawdown for 20 years, starting at age 60, aligned with average life expectancy in Malaysia. The current recommendations are:
1. Adequate Savings: Set at 240 times the Adequate Retirement Income, rounded down to the nearest RM10,000 (RM650,000). This enables monthly withdrawals starting at RM2,708 in year one, growing to RM7,389 by year 20.
2. Basic Savings: 60% of Adequate Savings amount (RM390,000). This supports monthly withdrawals of RM1,625 in year one, growing to RM4,434 by year 20.
3. Enhanced Savings: 2 times of Adequate Savings amount (RM1.3 million). This provides monthly withdrawals of RM5,417 in year one, increasing to RM14,779 by year 20, for a more comfortable retirement.
Conclusion
This new framework is better than the previous recommendation by EPF in which the Basic Savings at age 55 was RM 240,000 only. Generally, this is a move in the right direction.
The figures above serve as a guide for us to refer. Your actual amount required for retirement varies according to your unique circumstances. It also depends on where you will be living during retirement. In my opinion, the Basic Savings is too low. Personally, I need around two millions to retire comfortably. As EPF is just one of the retirement assets, we can also supplement our retirement income with other assets. Thus, you could use the recommendations by EPF as a starting point and adjust accordingly based on your needs.
For more information about the savings levels by age, click the following link:
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Disclaimer: This post is for informational purpose only. You should use judgment and conduct due diligence before taking any action or implementing any plan suggested or recommended in this article.
