KUALA LUMPUR, Dec 17 — A recent Khazanah Research Institute report has highlighted a pressing issue: financial insecurity among Malaysians, with many potentially lacking sufficient savings for retirement.

According to the report, more than 52 per cent of Employees’ Provident Fund (EPF) members under 55 have savings of less than RM10,000.

Recognising this alarming trend, the EPF has introduced the Retirement Income Adequacy (RIA) Framework to help Malaysians plan for a more secure and comfortable retirement.

This initiative aims to educate members on the savings required to meet their post-retirement needs.

Here’s an in-depth look at the RIA Framework and how it can guide you towards better financial planning.

What is the RIA Framework?

The RIA Framework is built around three tiers of savings:

  • Basic savings and income: Covers essential retirement needs
  • Adequate savings and income: Supports a reasonable standard of living in retirement
  • Enhanced savings and income: Provides greater financial independence and a higher quality of life

Savings targets

Based on the Belanjawanku 2024/2025 guidebook, the RIA outlines specific savings targets:

  • Adequate savings: RM650,000, equivalent to 240 times the monthly adequate retirement income
  • Basic savings: RM390,000, or 60 per cent of adequate savings
  • Enhanced savings: RM1.3 million, double the adequate savings target

Monthly withdrawal strategies

The RIA recommends structured monthly withdrawals over 20 years, in line with Malaysia’s average life expectancy:

  • Adequate savings (RM650,000): Start at RM2,708 per month, increasing to RM7,389 by year 20
  • Basic savings (RM390,000): Start at RM1,625 monthly, rising to RM4,434 by year 20
  • Enhanced savings (RM1.3 million): Begin at RM5,417 monthly, reaching RM14,779 by year 20

Implementation timeline

The RIA Framework will take effect from January 1, 2026, with phased increases in the basic savings requirement, starting at RM290,000 in 2026 and rising to RM390,000 by 2028.

To keep pace with economic changes, these benchmarks will be reviewed every three years beginning in 2029.

Managing excess savings

For members exceeding RM1 million in savings, the framework allows flexibility.

Up to 30 per cent of savings beyond the basic threshold can be invested in approved funds under the Members’ Investment Scheme.

Current challenges and adjustments

As of October 2024, EPF data shows only 36 per cent of active members meet the current basic savings level of RM240,000 at age 55.

The new benchmarks are expected to temporarily lower this percentage but are deemed necessary to address rising living costs and the current retirement age.

Notably, inflation erodes the purchasing power of savings.

For instance, RM1 million in 2007 has the same value as RM712,000 today. To maintain equivalent purchasing power, retirees now need RM1.4 million, which translates to RM6,000 per month over 20 years.

The four per cent rule

The Belanjawanku guidebook also recommends the “four per cent rule,” introduced by US financial planner William Bengen, as a prudent withdrawal strategy.

For example, retirees with RM1 million in savings could withdraw RM40,000 annually while preserving their fund.

The EPF advises members to leave remaining funds within the EPF and consult financial advisors for personalised retirement planning.