How to turn your EPF into a cash generating machine

Before we explore the secret of turning your EPF saving into a powerful cash generating machine, let's understand your EPF in more details.

As you are aware, EPF contributions made by an employee and by his or her employer on behalf of the employee are paid into the employee’s EPF account. Each account comprises two sub-accounts:

• Account 1 comprises savings for retirement at age 55. 70% of contributions are credited to this account.

• Account 2 comprises savings that can be withdrawn for the purchase of a house, mortgage repayments relating to a housing loan, education, medical expenses and/or pre-retirement withdrawal age at age 50. 30% of contributions are credited to Account 2.

Since 1996, under certain conditions, a member is entitled to make transfer from his or her Account 1 balance to an approved unit trust scheme. The latest revision of the withdrawal policy has been enforced on 1st Feb 2008.

The EPF will process a request to transfer an amount from a member’s Account 1 to approved unit trust scheme if:

• The Account 1 is not less than predefined basic saving according to age group (Table 1).


• The member is less than 55 years old.


• An account in the approved unit trust scheme has been opened which the transfer can be processed.


• No transfer has been made in the previous 3 months from the EPF Member’s Investment Scheme.


• The amount eligible for transfer is not less than RM1,000


• The amount to be transferred is not more than 20% of the Account 1 balance remaining after deducting the predefined basic saving (subject to a minimum of RM1,000)
  

Table 1. Account 1 Total Basic Saving

Below are examples in determining whether an account holder is qualify for a withdrawal

After fulfilling all the conditions above, you can start turning your EPF saving into a powerful money making machine for your retirement. Let’s look at the simulation below.

You are 28 year old, being paid for RM3,500 monthly of your job currently and has an accumulative EPF account 1 saving of RM30,000. Assuming that you start investing your EPF saving every year into a unit trust scheme which offered a moderate annual return of 10% for the next 27 years, you will see the result of the simulation below.

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You will have an extra of RM 527,120 in your account when you retire at the age of 55! Thanks to the wonder of compounding interest, all this will be achieved passively by just investing 20% of your account 1 balance into a unit trust scheme annually. In fact, you can do this in a much frequent basis which is every 3 months as long as the 20% of your account 1 balance is more than RM1,000.

Let’s look at another scenario which demonstrates a more robust return in a longer period. Assuming you start investing in a unit trust scheme at the age of 25 and the annual return of the UTS is 12.5%.



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It is almost 3 million!! A double of the normal EPF saving! Is this real? By a difference of 3 years and 2% of annual return? Well, figures don’t lie, as long as the projection is accurate and you start investing early.

How about if the projection is not accurate and you only able to achieve 8% return every year? Well, let’s look at the simulation again.

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Well, you still get an extra of RM 264,307. Not too bad, right?

The learning is simple. By investing your EPF saving into unit trust, you are going to expect an above average return in long run. If you start investing early, the possible return will be very much higher as the effect of compounding interest taken place. Of cause, you will need to invest in good unit trust schemes which managed by professional fund managers. So, what are you waiting for? Let’s kick start and move towards your ultimate dream of financial freedom. Call me for more information.

Bonus gift – download the EPF calculator and run your own simulation! You will know what you are going to get in the future.

Dave