Savings, investing and the EPF dilemma

IN the biblical parable of the talents, the master of the house, before setting out on his long journey, gave his three servants five, three and one talent each, with each talent representing a significant amount of money.

On his return, the one given five talents made another five, the one with three now has six. The third returned his single talent to his master.

While the first two invested the money, the third buried it in the ground, which angered his master who chided him for not working the money harder.

This is a tale about stewardship and applies to how one manages that which is entrusted to him, be it money, properties, abilities that one has or power.

The outcome of that trust provides the conclusion to the story.

Financial planning firm MYFP Services Sdn Bhd co-founder and director Robert Foo says how one plans that financial journey of investment is important.

The outcome is whether one ends one’s journey in positive or negative territory. It concludes with whether one is able to meet one’s life’s goals; be it having enough to retire comfortably, educating the children or meeting other life’s goals.

But before investing can begin, one must first saved enough in order to invest. It is a discipline all need to have.

“Investing comes after you have saved. If you have not saved anything, how will you invest?” Investing is trying to increase the savings that you have put aside so that you have enough to be able to bypass the rainy days, and those days will come. When a person goes into negative before his days end, he will be a problem for the country, and other Malaysians,” Foo says.

Despite this, many Malaysians fail to plan.

“You cannot plan when you are already in the negative. Or you have lost your job due to the impact of restrictions as a result of Covid19,” he says. So it is critical to plan as early as possible.

On the option for contributors to withdraw from EPF, Foo says it is necessary to stand back and consider EPF’S original aim, which is to help private sector workers to invest their money in order to build a retirement fund.

Because the only significant savings of most Malaysians are in the EPF, any changes to the EPF and its mandate has colossal repercussions.

When EPF says it needs to sell off profitable assets to fund the people’s withdrawals, it means EPF does not have enough money.

At the same time, less contributions go into EPF because contributors can now contribute 9% of their salary instead of 11% starting January 2021, he says.

There is every possibility that those who withdraw their savings given this option will fritter it away because they do know how to manage it.

“They may not even know if they are in the positive or negative in the first place.

“If a person has the money, an EPF withdrawal is a small thing. If he does not have a plan, it is a major thing,” he says.

When all these factors and options are pooled together, the impact on EPF and the future of its contributors can unleash a financial earthquake, Foo says.

Moreover, for years EPF and Bank Negara have concluded that a majority of Malaysians are not ready for retirement because they lack financial resources.

Bank Negara said in 2017 more than 75% of Malaysians would have difficulties saving RM1,000 for emergency needs, with the economic uncertainties and high cost of living.

It was reported this week that more than half of EPF members aged 54 and above have EPF savings of less than RM50,000, while only a third of them have reached the level of basic savings of RM240,000 by the age of 55.

“Most Malaysians lack longterm vision.

“Many have this attitude: ‘Planning? The last 20 years was good.

“Don’t worry about the next 20 years.’ That is how many Malaysian think.” Foo says.

This principle of saving in order to accumulate enough to invest applies to property purchases, as with other big ticket items.

Before one can buy a house, one has to save for it.

“The trouble is, many want to buy a house, but do not save or plan towards it.

“Most will decide to buy a house. “So a decision is made but there is no plan how he will reach that goal because he did not work out the numbers,” Foo says.

The numbers may involve the initial down payment, the subsequent monthly mortgage and other outgoings that goes into house ownership.

Assuming one is buying the house for investment, a buyer may fail to ask the yield from the investment. Rental drives value.

Many buy a property with a view to get the rental to service the loan.

Today, many owners have discovered that the rent may not cover the monthly mortgage.

Many are unable to sell or rent our their properties and yet they do not want to cut losses.

“The level of uncertainties is high, be it local or overseas.

“If your horizon has a home bias, that is most of your resources are parked in Malaysia, it means there is a lack of global exposure.

“Nobody has a crystal ball to the future.

“But this pandemic has shown that we have to have better plans so that we can navigate and make proper optimum financial decisions,” says Foo.