Save 1/3 Now for 2/3 Later

For most of us who are employed in the private sector, the EPF is the main source of our retirement funds. However recent studies have shown that the mandatory contributions to the EPF may not be adequate to replace 2/3 of your last drawn income. This has been also been reported in numerous articles highlighting the need to save more for retirement beyond the contributions made to the EPF.

At the national level, Malaysia’s current replacement income ratio stands at 30%, compared to the 57% average for Organisation of Economic Corporation and Development (OECD) countries. With Malaysia moving towards an ageing society by 2020 and 11.3% of the population in retirement age, we need to address this issue both nationally and individually before it become a socio economic problem for the average Malaysian who may not be able to replace their 2/3 last drawn income.

What then is adequate savings for retirement?  PPA’s research suggests that you will have to set aside 1/3 of your monthly income to achieve the 2/3 replacement income. While this may seem to be  a “tall order” with current income levels and cost of living concerns, to set aside 1/3 of monthly income,  it is nevertheless doable and not as hefty as you think. As Malaysians, we are fortunate to have the mandatory minimum EPF contributions totaling 23% (namely 11% from employee and minimum 12% employer contribution), you will possibly need to contribute an additional 10% or more, to make up the 1/3 or 33% savings for our retirement fund.

Given that we will have to replace our earned income when we retire to provide for retirement years, we will have to build our retirement funds to generate income and within the time frame left before hitting the retirement age at 60. The objective then is to build up our retirement funds to the desired level which can then generate a passive retirement income stream to replace 2/3 of our last drawn income.

“Setting aside 1/3 of your monthly income is doable”

Building up our future retirement funds requires you to pay attention to the following:

  • Set aside time to invest in your retirement plan to accumulate the funds required to generate income replacement for your retirement.
  • Find how much EPF funds you have accumulated to date and other savings for retirement and what additional savings you need to make.
  • Determine the additional savings to make up the 1/3 current retirement contribution requirements to provide for 2/3 future replacement income.
  • Start your PRS account to place the additional savings contributions into a PRS fund that will provide potential compounding  growth.

It can be a daunting task to determine how much your last drawn income would be before your retirement.  To find out your projected last drawn income based on the retiring age at 60, you can easily make the computations with PPA’s retirement calculator*. Just go to and in a few simple steps find out how much additional savings you need to make on top of your EPF. Make this an annual review to reflect changes to your current income and financial circumstances.


* You can check your respective retirement savings gap with PPA’s retirement calculator at as it involves assumptions based on your age, contribution amount as well as investment risk and returns.

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