KWSP has just announced the approval by Ministry of Finance to further allow members to withdraw yearly to settle their mortgage loans.

Who doesn’t dig the idea of having cash in their pocket? Moreover, the money is to settle a few decades of home loans which is eating up a huge portion of their monthly incomes.

But is this a healthy sign? Isn’t the main purpose of EPF contribution to provide for the income-less period of our retirement life? Yes, one can argue that there are 3 accounts, where Account 1, 60% of the bulk, is meant for retirement, while Account 2 (30%) and Account 3 (10%) can be withdrawn for specific purposes.

Via The Star>

Under the Education Withdrawal, they were only previously allowed to withdraw savings to pay for diploma courses for themselves and for degree courses and above for their children.The housing withdrawals, according to a statement yesterday, can be made annually from the last date of withdrawal, with a minimum amount of RM500.

Firstly, it’s a good idea for members who have already had a huge sum in their accounts. But huge sums is a subjective figure. If the member’s idea of retiring is to travel around the world, continue to live their current lifestyle, it won’t be long before their EPF savings are depleted. The percentage of EPF we are contributing is only a mere 23% of our current income (including the Employer’s contribution). You do the maths.

Secondly, this is a very good idea for those members who already is already paying up their housing loan. This yearly withdrawal policy will definitely speed things up. What about young couples who are planning to get a new nest for themselves. With the flexibility of withdrawing from EPF for their new home loans, not unlike the ATM card, they will be eyeing for properties that they might not have the capacity to pay via their net monthly income, and hope that the EPF savings will help them ease the burden. This could well be a booster to the real estate and property sector. Nevertheless, risky move.

Thirdly, a new withdrawal policy from the EPF is always open for abuse. Yes, it has happened before, and it will happen again.

KWSP on the Computer Purchase Withdrawal Scheme>

The study also showed that 80 per cent of the personal computers in the country were not purchased through this scheme, indicating that the “one computer, one home” agenda can be achieved without the scheme.

The EPF believes that with the discontinuation of the scheme, members who genuinely want to purchase computers will not be inconvenienced as there are several financing options available in the market with easy repayment terms.

What do I recommend?

I sincerely urge EPF members to restrain themselves from touching their EPF accounts. Yes, it’s very tempting to make pre-mature withdrawals to settle debts and loans, but you shouldn’t start a debt or loan scheme with the withdrawals of your EPF account in mind. You are simply risking your future retirement lifestyle to satisfy temporary gratifications. Unless you have a considerable amount of savings in a separate endowment or annuity fund which you have planned, the risk is not worth it.

There’s a reason why EPF do not give ATM cards to their members. Just look at the state of our savings account with ATM cards. Congratulations to you if you have more than 3 months of your existing salary! Unfortunately, most can only live 3 weeks with that money.

And before we let ourselves be overwhelmed by an oncoming retiring crisis, we can also take a look at how our neighbouring country is doing. They have pretty much the same demographics as us, so it’s not a very far-off comparison.

Singapore’s Retirement Crisis>

If we translate employees projected CPF amounts after reductions, we get an income after retirement of about 25% of last drawn salary for low-income employees and below 10% of last drawn salary for high-income employees.

Relying on the CPF alone will ensure a total collapse in living standards – instead of the $2,000 a month, our retiree will be trying to survive on $750 a month or $25 a day to cover food, clothing, travel, medical expenses, etc. And he’ll have to do this every day for the next 30 years. If that is not a grim enough prospect then what makes matters worse is the effect inflation will have on this meagre $25 over the next 30 years.

Unless you are thinking of slaving until 60 years old, I think it’s a good idea to wipe off the thought of any pre-mature EPF withdrawal. Let it accumulate in silence, forget that it even existed, and you will have your golden goose when you need it.

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