Recently much debate on the Budget 2021 of the EPF i-Sinar withdrawal on Account 1. EPF members who have lost their job for at least 2 consecutive months or have no other source of income (Category 1), or suffered a minimum 30% reduced income since 1 March 2020 (Category 2) are eligible to take out up to RM60,000. EPF members only apply online via (isinar.kwsp.gov.my) starting from 21 Dec 2020 for Category 1 without providing any supporting documentation and will be automatic approval, while Category 2 applies online starting from 21 Jan 2021 with supporting documentation such as salary slip before and after pay cut, or employer’s written acknowledgment for due consideration.
The EPF i-Sinar program is considered as a withdrawal facility from Account 1 up to 10% or maximum RM60,000, distribution is in staggered 6 months period. For EPF members Account 1 less than RM100,000, can withdraw RM5,000 in the first month, then the balance for the rest 5 months in a staggered manner.
For example, if the member’s total savings amount to RM5,000, the total maximum amount that can be withdrawn will be RM4,900, as a minimum balance of RM100 is required to be kept in their Account 1 to be maintained as an EPF member.
Many might take advantage of this withdrawal facility, not for survival mode, instead go for future retail purchases or misapply it for investment, which derail from the actual purpose.
EPF money is meant for our retirement intention, however, if one withdraws it solely for current use without considering later retirement age, subsequently this will only postpone the problem to a later date in default of never addressing the root problem.
Bearing on EPF Investment
In early Q2 of 2020, EPF launched i-Lestari (RM500 withdrawal from Acc1 for 12mths), and now the i-Sinar withdrawal facility. From Apr up till now Dec 2020, EPF employee contribution from 11% drop to 7% and extension date of employer EPF contribution, all these have reduced EPF cash flow.
These sudden withdrawals seriously impacted EPF cashflow due to rare and massive extraction, EPF might need to liquidate some of its investment in the equity market, however, will firstly liquidate less potential performed assets. And since EPF is the largest equity market investor, they need to be careful not to badly affect the equity market price. However, EPF will also follow back their planned Strategic Asset Allocation (SAA) as the same guideline for this event.
The Fate of Personal Finance
If we are not carefully planned our budgeting, this will happen to our finances too. The emergency fund prepared is insufficient to cushion the impact of when our expenses more than income, consequently we need to liquidate our saving if still cannot cope, next will be our investment that was meant for future higher potential growth or lastly our retirement function.
Make it as Last Resort
Those who desired to utilize the EPF i-Sinar withdrawal facility (and previous EPF i-Lestari) need to diagnose the actual reason why to get this money out, is it a last resort for survival or other purposes?
If it is a genuine case for survival mode, do develop a repayment plan on how much amount regularly to return the future contribution either to EPF or a separate investment retirement account.
Then deploy the repayment plan by taking necessary steps, from which resources, by when to start and end date of the payback settlement.
Starting a Good Financial Habit is the Most Difficult
In money management, the most difficult step is to start cultivating good financial habits such as below. Why not start with a baby step first?
- reduce or hold all unnecessary retail purchases, or we so-called reduce expenses, (i.e. regular cook at home instead of frequent dining out or order outside foods), this way we can eat healthier and learn a new skill set of cooking and baking.
- immediately rebuild back emergency fund (eg. 6-12 months of living cost expenses) in liquid cash structure such as Fixed Deposit (or Money Market) however NOT in investment.
- strategize a good game plan of how to grow your money after the excess of the saved emergency fund. Where to invest, what to invest, how to invest, how much to invest, and most importantly what’s the exit plan for all the investment.
- If the above arrangement adds to stress from work or other daily activities, is taking its toll on your mind, engaging a professional such as a licensed financial planner for personal coaching can help you relax.
Life is not a rehearsal, precious time is slipping away, why not use the available time to do what you enjoy the most on this planet?