Friday, April 23, 2021

Savings During Pandemic

 I’m sure not many enjoy reading about the current situation where the pandemic is just causing so many problems for everyone. Plus, with cases rising, restrictions are just going to be even tighter and more inconvenient. However, I would like to share a story of a thought I have a couple of months ago. This was when cases were still rather high in numbers and I was planning for my financial future.

Between the end of 2020 and the beginning of 2021, I considered withdrawing a considerable amount of money from my Employees Provident Fund (EPF) account through the I-Sinar program. My thoughts at that time were something like “This money is mine anyway, I should withdraw some of it and put it to good use”. So, I read up on the application process and the eligibility criteria of the program. There were quite a few restrictions on people who are eligible to withdraw their savings. You have to either prove that you are self-employed and have not contributed to the fund for at least 2 consecutive months, of show that you have a deduction of 30% or more in total income if you are an employee. During my preparation, I also thought about how I should spend the money withdrawn from EPF.

During my preparation, I tried to calculate the amount of interest I will give up if I withdraw from my EPF. I found that the lowest dividend rate contributed by EPF was 5.45% for the year 2020. Therefore, assuming that over the next 10 years, the dividend offered stays constant at 5.45%, with a withdrawal of RM10,000, I am giving up a total of RM7,000 in interest alone over the next 10 years. I calculated these figures from this page. In short, if I want to be at a similar net worth in 10 years after withdrawal using the I-Sinar program, I need to at least match the dividend offered by EPF.

With this in mind, I looked for products which can give me similar returns during this pandemic economy. My options were rather limited as the overnight policy rate (OPR) is at an all-time low of 1.75%. This created a situation where savings grow very little, while loans are cheaper than usual. Things didn’t look so good for my plans and I started thinking if I really needed the money at this point in time, Was I in a position where the withdrawn money will help me resolve any immediate problems or diffuse certain situations. This is because, if I withdraw RM10,000 now, I will potentially be short of RM17,000 that I can use for any spending I need 10 years down the road. I tried to weigh all options carefully and made a decision.

While I will not share the decision I made, I hope I have contributed to the discussion regarding this problem. I’m not sure if I was able to present my thoughts clearly in writing, but those were the main issues I was thinking about while pondering my decision at that time.

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