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The government is once again opening up applications for Malaysians to withdraw funds from their EPF accounts. From April 1-30, special withdrawals can be made from EPF of up to RM10K for members below the age of 55.
On one hand, this special withdrawal can help bolster members who really need the money for daily necessities after the pandemic’s effect on the economy and job market.
But what about those who aren’t in a cash-tight position? What justifies a good reason to withdraw RM10K from your retirement fund?
To get some insights, we got the expert opinion of:
- KC Lau of kclau.com
- Yi Xuan of No Money Lah by Yi Xuan
- Suraya Zainudin of Ringgit Oh Ringgit
- Aaron Tang of Mr-Stingy
1. Should I withdraw to invest elsewhere?
Some may withdraw the RM10K to invest in other places that could provide them with higher interest rates compared to EPF’s 6.1%. Stocks, mutual funds, and crypto are some examples, and KC is in this camp.
However, the success of investments is dependent on how good the investor is. KC advised investing in long-term assets like stocks from reputable companies that have a long business runway, but avoid speculating on new asset classes.
As for risk-takers who want to use the RM10K to try out high-risk investments, Suraya suggests using a maximum of RM1K to satisfy that itch, and put the rest somewhere safer. “Even if you lose it all, you only lose RM1K. Not all RM10K,” she pointed out.
Aaron supplied a different perspective though.
Personally, I’m not doing this myself. My personal opinion is that EPF is underrated—it’s extremely difficult to find something low risk like the EPF that still gives you good returns every year. Over the past 50 years, EPF has returned between 4.25% to 8.50%, often on the higher side. Perhaps the best question to consider is, “Are you able to get higher returns consistently, year after year, if you invest for yourself?”.
Aaron Tang of Mr-Stingy
Ultimately, those planning to make such a move should do their own research first, before making any investment decisions. “If that’s not something you’d enjoy doing, stick with EPF,” added Yi Xuan.
Verdict: You could, but do your research first.
2. Could I use the EPF funds to start an emergency reserve?
While your savings can be your de facto emergency funds, how many of us actually have a dedicated pool for unforeseen circumstances like an accident, medical situation, or natural disaster?
All our interviewees agreed that you should only use EPF funds for an emergency reserve if you’re in a desperate situation and have no other choice.
They advised to first look into other sources of funding such as seeking help from family members, insurance policies with cash values that can be withdrawn anytime, or SSPN contributions. Or, increasing your income through side hustles or a job switch can enable you to set aside additional money to build your emergency fund.
Yi Xuan provided some practical ways you could start establishing one. Conventional fixed deposits are an option, but he’d recommend cash management apps like Versa, KDI Save, or StashAway Simple, as these options let you access your funds at any time.
Verdict: Not recommended, unless it’s your only option.
3. Should I withdraw the funds to help out a family member in a crisis?
Aaron likened it to the airplane analogy of what happens when the oxygen masks drop. In any emergency in life, we should take care of ourselves before helping others.
The same idea applies in the context of finances, which the other bloggers echoed.
For one, you should first understand why your relatives are in financial hardship. Is it due to extremely bad luck or pure financial foolishness? “I wouldn’t help the latter by giving them more money. It will only worsen the situation,” said KC who added that he would consider the former.
“However, if it has to resort to using my EPF money, I wouldn’t help with that either.”
From Suraya’s point of view, withdrawing EPF money is completely justified if it’s for health and safety reasons, but not debt.
Verdict: Not recommended, unless it’s for health or safety reasons.
4. What if I need it as business capital or runway?
For those doing so, the same amount of money should be replenished in the account as soon as possible, according to Yi Xuan.
Otherwise, there are many other ways to fund a startup, and entrepreneurs should look through all the possibilities of getting funding, advised KC. This could include bootstrapping, equity crowdfunding, finding angel investors, and more.
If the EPF money is your last resort to fund the business or stretch its runway, then he advises to do something else rather than run that business.
Suraya suggested looking into businesses that you can start with little to no capital. “Market and sell your services first,” she expressed.
Verdict: Not recommended, but if you do so make sure to replenish the same amount ASAP.
5. Is it worth withdrawing for a downpayment?
The pandemic’s toll on the economy has resulted in property and car dealers offering better rates and promos. Suraya advised against being persuaded by a marketer’s sales tactics; there will always be other deals in the future.
Suraya and KC stressed that the cost of buying the house is never what it seems from the start.
“Getting a house is a long-term commitment and all expenses will balloon (e.g. higher utilities, property taxes, maintenance, and mortgage instalments),” KC noted.
“The thing about houses with RM10K downpayment is you eventually need at least RM30K for other stuff,” Suraya added. “A good rule of thumb with cars and houses is to triple the instalment payments. If you can’t afford that amount every month, you can’t afford it.”
Yi Xuan and Aaron prefer to save up for such down payments and shared advice on how you can do the same.
“Plan your purchases and start saving towards the downpayment,” Yi Xuan conveyed. “The downpayment amount can be intimidating, but if you save for them across, say, three years (36 months) or five years (60 months), it isn’t that scary.”
Aaron pitched in, “There’s no harm in renting while you save up for your own home.”
Verdict: Not recommended, you’re better off saving up for it.
6. Should I use the RM10K to pay off an existing loan?
In line with the above point, those who have bought a property, car, or taken on other kinds of loans have debts to settle. Using the EPF withdrawal money to pay off high-interest debt makes sense to those hoping to lower their compound interests.
Did you know: Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest.
For example, when you have RM10K in EPF, getting 6% interest, you get RM600 extra next year. Then the RM600 will get another 6%, and compound into the future. This would work the same way in the context of a loan.
The finance bloggers were split on this question. On the one hand, Yi Xuan and Suraya believe it’s better to stick with the original payment plan, and look into other ways for possible debt restructuring.
Aaron addressed that there’s a mathematical answer to this, which KC broke down with a few scenarios:
| Loan | Interest rate | Opportunity cost |
| Credit card debt | 18% | Paying it off with EPF is better. |
| Mortgage loan | 3% | Paying it off with EPF will destroy value. |
| PTPTN loan | 15% discount if settled pay before April 30, 2022 | Evaluate the rate of return you get for paying it off earlier with a discount. In standard cases, if your remaining PTPTN tenure is less than six years, you will get more than 10% return per annum for clearing the debts with a discount. So, it is a smart move to use EPF money for that. |
Essentially, if your loan’s interest rate is higher than your investment’s (again, EPF is about 6%), then it is justified to use the EPF funds to pay off your debt.
Verdict: Maybe, if the opportunity cost weighs out.
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Reiterating my point above, the special EPF withdrawal is a relief for those in tight financial situations to meet their basic needs.
RM10K might ease the situation temporarily, but it won’t last long, so KC shared some steps on how such individuals could sustain themselves for a longer term:
- Cut expenses radically, especially the recurring ones
- Brainstorm what you can do to make more money
- Get advice from professionals
- Improve your skills or capabilities
Don’t use that money to bet on anything that you think can generate massive returns in the short term (e.g. casino, lottery, speculative assets, unknown money schemes, etc.), [as] those things never work.
KC Lau of kclau.com
“Winning a lottery won’t change your life. But changing your way of dealing with money wisely will make lasting differences,” he concluded.
- Read more finance-related pieces we’ve covered here.
Featured Image Credit: KC Lau / Yi Xuan / Suraya Zainudin / Aaron Tang
