EPF introduces three-tier retirement savings framework

The Employees Provident Fund (EPF) has introduced a new Retirement Income Adequacy (RIA) Framework to help Malaysians plan for a more secure and comfortable retirement. The framework is built around three tiers of savings: basic, adequate, and enhanced. Based on the Belanjawanku 2024/2025 guidebook, the RIA outlines specific savings targets. Adequate savings are set at RM650,000, equivalent to 240 times the monthly adequate retirement income. Basic savings are RM390,000, or 60 percent of adequate savings. Enhanced savings are RM1.3 million, double the adequate savings target. The RIA recommends structured monthly withdrawals over 20 years, in line with Malaysia’s average life expectancy. For adequate savings of RM650,000, withdrawals start at RM2,708 per month, increasing to RM7,389 by year 20. Basic savings of RM390,000 begin at RM1,625 monthly, rising to RM4,434 by year 20. Enhanced savings of RM1.3 million start at RM5,417 monthly, reaching RM14,779 by year 20. 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.

Retirement savings tier framework explained

These benchmarks will be reviewed every three years beginning in 2029 to keep pace with economic changes. For members exceeding RM1 million in savings, the framework allows flexibility. Up to 30 percent of savings beyond the basic threshold can be invested in approved funds under the Members’ Investment Scheme. As of October 2024, EPF data shows only 36 percent 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. 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 Belanjawanku guidebook also recommends the “four percent rule” as a prudent withdrawal strategy. 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 personalized retirement planning.