With scant savings, more Malaysians can’t afford to retire

Gracie Lee, 52, has worked as a clerk for a clan association in Penang for almost three decades, and earns about RM2,000 (S$670) a month. Her husband, who wants to be known only as Mr Tan, 56, worked as a machinist but stopped 10 years ago after he suffered a stroke.

Over the years, the couple with two sons in school have tapped into their retirement savings to pay for Mr Tan’s stroke treatment, their flat in Bayan Baru, and their older son’s university fees.

They are now among the 78 per cent of 6.7 million contributors to the Malaysia’s Employees Provident Fund (EPF) — the mandatory state-run pension fund — who do not have enough put away to retire. Madam Lee is reluctant to say exactly how much they have saved, only that it is “very far from the minimum (needed)”.

Things are getting pricier, she said, especially after a 6 per cent goods and services tax was implemented in April last year.

Asked what plans she and Mr Tan have to sustain themselves in the near future with both of them getting older, she said: “There is no plan”. They can only hope their sons would do well enough to support them, she added.

For many older Malaysians, the prospect of a comfortable and independent retirement is looking increasingly remote. Despite decades of economic expansion as Malaysia industrialised its once agriculture-based economy, growth in wages has lagged behind the rise in the cost of living, thanks in part to high home and car prices.

Malaysians are also living longer; by 2030, 5.2 million Malaysians, or 14 per cent of the population, is expected to be aged 60 and above.

The average life expectancy is now 77.4 years for women and 72.5 for men, up from 65.5 for women and 61.6 for men in 1970.

In May, EPF officials declared that most Malaysians do not have enough savings in their EPF accounts to sustain their lives after retirement.

EPF said only 22 per cent of active contributors aged 54 have saved at least RM196,800 — considered the minimum needed — to support their retirement years, while 65 per cent had under RM50,000, which would last them five years at the most.

As a result, many find themselves depending on handouts from their children or partner, government financial aid, or simply continuing to work, according to Bank Negara Malaysia.

At a social security conference earlier this month, the central bank’s assistant governor Jessica Chew said 40 per cent of Malaysians claimed to be ready for retirement while 60 per cent said they have strategies; but 92 per cent were worried — 33 per cent were “very worried” and 59 per cent “a bit worried” — about their ability to retire and live off their savings.

TOO POOR TO RETIRE

By law, wage earners are required to contribute 11 per cent of their monthly salary — reduced temporarily to 8 per cent from March this year until December 2017 as inflation flared — while employers contribute 13 per cent for employees earning under RM5,000 and 12 per cent for those earning over RM5,000.

The contributors’ money is invested by EPF in approved financial instruments such as the Malaysian government bonds, equities and property; and contributors are guaranteed a minimum 2.5 per cent dividend annually. The annual dividend rate declared by EPF is subject to the returns from its investments.

Contributors may not withdraw their EPF savings until they retire but the government allows some early withdrawal for payment of housing loans, performing the hajj and some other special circumstances.

With median monthly wages in Malaysia currently at RM1,600, according to the Statistics Department, that doesn’t always add up to much.

Worse, the cost of maintaining a household is rising at a faster rate than wages. According to the Malaysian Economic Planning Unit (EPU), the mean household income in Malaysia grew from RM4,025 in 2009 to RM6,141 in 2014; reflecting a compound annual growth rate of 8.8 per cent.

Meanwhile, the mean monthly household consumption expenditure increased from RM2,190 in 2009 to RM3,578 in 2014, which was a 10.32 per cent compound annual growth rate.

In its annual report last year, Bank Negara said overall income grew along with expenditure between 2009 and 2014, and on average, income exceeded spending. However, lower-income groups were spending more than their earnings while some segments like fixed income households and pensioners saw no growth in income. Meanwhile, the bottom 40 per cent households (earning under RM3,649 or $1,222.48 a month) faced growing financial obligations like loan repayments and had little savings.

It hasn’t helped that a cash-strapped government has pulled back subsidies – for fuel, sugar and cooking gas. And although monthly inflation figures remain in the low single-digits, Malaysians pay high prices for housing and cars.

Last year, Khazanah Research Institute’s “Making Housing Affordable” report called the nation’s housing market “seriously unaffordable,” with a median house price 4.4 times the median annual household income.

Following its fourth publication of “The State of Households II”, which was released on Monday (Aug 29), KRI said most household debt was undertaken to finance house purchases, where housing loans had expanded by 11 per cent between 2014 and 2015. The institute said Malaysians were borrowing too much and not saving enough, with the ratio of household debt to gross domestic product remaining high at 89.1 per cent in 2015 against 87.4 per cent in 2014.

To encourage workers to work longer years and save, the Malaysian government raised the retirement age for public servants from 58 to 60 in 2012, and for private sector workers, from 55 to 60 in 2013.

The government also recently raised the minimum wage by about 11 per cent to RM1,000 a month in the peninsula and RM920 in East Malaysia, and expanded this year’s 1Malaysia People’s Aid (BR1M) scheme — aimed at cushioning the effects of the rising cost of living — to the tune of RM5.9 billion.

EGGS IN DIFFERENT BASKETS

Not all Malaysians are savvy enough to diversify their investments in products like unit trusts, which offer higher returns than simply putting money in a bank.

Ms Chew of Bank Negara said most Malaysians adopted a passive retirement strategy as reflected in the composition of household assets: 42 per cent preferring to buy properties, 25 per cent saving money in the bank, 18 per cent (EPF), 8 per cent (equity investments), 4 per cent (unit trust) and 3 per cent (endowment policies).

Many Malaysians continue to stash their money in fixed deposits because they feel their money is safe, despite historically low interest rates, said investment planner Tracy Mak of Eastspring Investment in Kuala Lumpur.

However, more are signing up for investment-linked products in recent years, she said, adding that those with medical benefits were popular among clients.

“People are looking for options to increase their earnings,” she told TODAY in an email. “They know their EPF (savings) is not enough for retirement.”

Cindy Ling, 32, a marketing manager at a beverage company and her husband Alex Wong, 36, who runs a small fruit business, are among those who worry about not having enough money in their retirement years, even though they are decades away from retirement age.

The couple, who live in Sentul, Kuala Lumpur, have a combined monthly income of about RM10,000 and an estimated RM100,000 in their EPF accounts. They took out RM4,000 from their EPF last year and put it in a mutual fund.

They plan to have children, which will mean more costs including college fees due when the couple is in their 50s.

“I don’t think we can retire,” she said. “We assume our EPF will not last us over three years. Based on what I can save, like RM500 monthly, I should be able to put away another RM180,000 for retirement and stretch the money for seven or eight years.”

She and her husband dream of saving enough to buy a plot in the countryside, where they can build a home as well as take in paying guests to generate income.

“At least we will have a home and space to grow vegetables and fruits while having some customers to support our living as we grow old,” she said, adding that she also hoped to make some money blogging recipes and publishing a cookbook.

Samsudin Ismail from Bangi, Selangor, a 30-something-year-old father of two young children, is also looking at other avenues to earn money. The private hospital nurse has been a part-time salesman since 2014, selling “all sorts of things”, including cosmetics, health products, clothes, salted eggs and even undergarments at one time.

“Far’ain (his wife, 31, who is also a private hospital nurse) and I make over RM5,000 a month. With prices going up, it is a real challenge trying to put away money for old age. We have just about RM18,000 in our EPF accounts. Even with years to go, I doubt we will be able to have enough (to retire).

“But now, we are just worried about providing for our kids,” he said, adding that he had put some money in gold investment.

GETTING BY

Even those who manage to sock away a tidy sum can lose it all with some ill-timed decisions.

When he closed his electronics shop and retired at 50 in 1999, Penangite Richard Krishnan had over RM800,000 in his EPF account. Within a decade, he had spent it all.

The former businessman, now 67, said he spent RM5,000 to RM6,000 a month until he lost his retirement savings. Several years before he retired, he had also invested in high-risk stocks and lost money.

“I started playing in the stock market in 1995. I bought many stocks. I made some money and lost some ... that was normal. But then the Asian Financial Crisis of 97-98 came. It ‘killed’ many people. I lost big,” he said, adding that he also lost his house to the bank in 2001.

With his EPF money ‘burned’ and no children to support him, he rents a room at a friend’s house for RM250 a month, and works three days a week in the Malaysian government funded patrol unit, People’s Volunteer Corps. The job, which involves directing traffic and parking at the entrance of the Penang Hill funicular train station, earns him RM60 a day.

“I don’t take money from friends or the government. My health is still okay so I will work for as long as I can. I just have to budget my daily spending on necessities like food,” he told TODAY recently at the Sivasanta Derma free clinic on River Road, Penang.

For folks who have never been in formal employment, with little savings of any kind, the government is where they turn.

Asha Omar, 73, lives in a flat she rents from the Penang Island City Council-owned RM100 a month. She lives in the River Road flat with two grandkids — an odd-job worker with no stable income and a teen with learning difficulties. She relies on RM300 a month in aid from the Welfare Department (JKM), RM600 zakat (Muslim tithe) during the Aidilfitri season, and occasional help from her son.

Teoh Sooi Kin, 70, another River Road flat tenant and a JKM aid recipient, used to sew and clean for a living but has since retired due to failing health. She and her husband, who is also ill, have no children around to care for them.

“We try to spent little by eating cheaply…just rice and veggie soup. For healthcare, we are lucky. Senior citizens get free medical treatment at (the government-run) Penang Hospital,” she said when met at the free clinic.

In a recent email responding to questions from TODAY, the Malaysian Women, Family and Community Development Ministry’s policy division said up until this February, JKM have disbursed Financial Assistance for the Elderly to 140,371 recipients nationwide. The RM300 monthly aid helps the recipient, who has no income or family member to depend on, stay in the community. Sabah (26,079), Sarawak (22,577) and Johor (14,332) had the most recipients.

The goal, however, is to limit the funds to vulnerable groups who are physically not able to work. Those who can work are given skills training, job opportunities and start-up grants to help them be self-reliant, the ministry said. ADDITIONAL REPORTING BY EILEEN NG

Looi Suechern is a Malaysian journalist who has worked with The Star, New Straits Times and The Malaysian Insider.