During the webinar I hosted featuring co-founder of Bursa Method, Peter Lim shared about his view on the money most of us have inside EPF. Below is what he said:
EPF cannot be categorized as cash as it is being put away and ‘untouchable’. It could be categorized as bond for some people while others could view it as ‘dead’ money.
Why ‘dead’ money? It is seen as ‘dead’ because EPF savings are being put away until a certain age. Cash is supposed to be free to be used at any time and reachable when needed. However, in this instance, EPF has a maturity period and allowed to be withdrawn only the time comes or 30% withdrawal is allowed if one has a housing loan commitment. Other than that, the money is being locked up until age 60 per the current regulations.
Although through EPF contributions, one would be able to save on tax but looking at the amount of money that we need to put into EPF every year, with the limitations of EPF, it could not be categorize as cash. Liquidity is very important. Most of the time, businesses failed due to inability to turn around cash, while they need to pay up creditors and debtors still owe them. Hence, liquidity of cash is highly important.
So should we save in PRS then? PRS or not highly depends on the number of years towards official retirement age. Another thing to look into is the current tax bracket that you are in. The higher tax bracket you are in, the more worthwhile it will be.
Other things to consider, if not EPF or PRS – what other alternative does he have. If you could earn and make more profit than PRS or EPF, then by all means go ahead. However, if neither is selected and option is to spend the money or put it in FD, then PRS or EPF is of course a better way to save. Unless that you have very good discipline and would not spend the money being put away, participating in either EPF or PRS does make sense. Many people are not being able to retire today because they lack the discipline and EPF will become a huge portion of their assets. Hence, apart from knowledge, passion and the ability to invest, discipline is a mandatory – MUST HAVE.