kcchongnz blog
I am retiring and need help to invest EPF money in stock market kcchongnz
Hi KC,
I have been reading your articles in i3investor regarding value investing and found they are interesting and make sense. I am going to retire soon, and I hope you can assist me to make some money in the stock market so that I can have a better retirement life.
After working for 40 years, we have brought up three children and provided them with education which they are able to stand on their feet now and having their own families to take care of. Fortunately, we bought a house long time ago and we have finished the mortgage payment. I figure that we need about a monthly income of RM8k in retirement for our basic needs which include occasional overseas trips but to cheaper destinations in Asia, a small car, and occasional eating out in good restaurants which we love to indulge in.
We have only left with RM200k saving. We have RM1.8m money in our EPF, and we are contemplating to take out the money and invest in the stock market to get better return, and hence a better retirement life, a bigger car, more frequent dinner at good restaurants, and travelling overseas for holidays at least once a year, and buying some presents for our grandchildren every now and then.
Would you able to help me KC?
John
Hi John,
Congratulation for your retirement and the total amount of money you have of RM2m for your retirement. After working for so many years, I guess you are ready to enjoy a happy retirement life. We all do, after all, life is short.
A recent survey by global insurance group AIA revealed that the average amount middle-class Malaysians desire to have in their savings for when they retire comes to RM1.9 million. However, according to recent figures from the Employees Provident Fund (EPF), the approximately 70,000 active 54-year-old contributors have an average savings of just 167000 in 2013, below the recommended minimum savings level of RM196800. The situation is made more alarming by the revelation that 69 per cent of all EPF contributors of the same age have less than RM50000 in their accounts.
So, with a total saving you have of RM2m, you should be living quite comfortably in your retirement. But that is provided that you don’t lose this money you have carelessly during your retirement. That includes taking out your money from EPF and invest in the stock market.
The stock market is filled with volatility. It is a good place for young working people, who has regular income, to invest in it for better return over a long period of time, so that when they retire, they have more money to enjoy their retirement life, like what you wish for now.
However, for retirees, most wish for a reasonable retirement life without outliving the money they have saved, not so much of yearning for a luxurious retirement life. They do not have the time on their side, and without any regular income if things don’t work out. There will be times when things don’t work out for sure.
Let say you start to invest all your retirement money in the stock market now. For whatever reason the market tanks and say you lose 50%, or RM1m. It will take you about 9 years with 10% return every year just to recover your capital. How many 9-years do you have? What will be your lifestyle like for the next 20 years in retirement with RM1m, instead of the original RM2m?
Think about the likelihood of losses first before thinking about the potential gain, especially if you are investing your retirement money.
So, sorry, I have to admit that I do not have the confidence to help you to make more money from the stock market. If someone comes along and confidently tells you he sure can, think twice.
Not everyone thinks the same though. Putting myself in your shoes, I will leave the total RM1.8m you have in EPF, as EPF is the safest place to keep the retirement money. Furthermore, EPF has been providing good dividend higher than the bank interest rates too. For retirement expenses, I would give instruction to EPF to provide me a monthly income lasting for 20 years, adjusted to inflation, like an inflation adjusted annuity, but free of tax and other costs; unlike most annuities sold by insurance companies with much lower return due to fees. With this you would be able to get about RM8300 a month, in today’s money every month for the next twenty years, assuming the average of 5% dividend rate. This monthly inflation adjusted amount of RM8300 will enable you to enjoy your retirement life.
However, if you still wish to invest in the stock market, either with the hope of earning more money for even a better retirement life, or just for some fun with the spare time you have in retirement, you still have RM200k in your saving which you can utilize. With a better return from the stock market as compared to bank interest rates, hopefully, you may be able to indulge in some luxuries in retirement life, such as a bigger car, overseas trips to more places, more frequent wine and dine, etc., or just have some fun with good outcomes. Although you won’t be travelling overseas that often when you get older, that amount of money could be used for higher medical costs and care when you get older.
The saving of RM200k is still hard-earned money. Before you start to dabble in the stock market, I would suggest you learn about the market and the fundamentals of investing in order to have a higher probability of success in your investment journey. Never try speculating in the stock market from stock tips, rumours, hypes and fads. It is fun like gambling, but no fun also when your money evaporates.
This I may be able to help you. Not only me, there are plenty of resources out there, some free and some have to pay some money, some a lot of money, and some just a little to shorten your learning curve in a structured manner. It is fun to learn this stuff and you have plenty of time to do it.
I have written an eBook on personal finance and investment. It is free. If you wish to get a copy to provide you with some guidance in personal finance and investing, you may email me at,
Best of luck.
KC
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Discussions
6 people like this. Showing 34 of 34 comments
by CFTrader > May 27, 2019 9:14 PM | Report Abuse
Quote 1 : I figure that we need about a monthly income of RM8k in retirement
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u want to travel the world every day meh?
2019-05-27 21:17
Take into account your medical coverage in case of poor health after retirement
2019-05-27 21:22
Old man , don't greedy ! Spend more time to do your hobbies or travel !
2019-05-27 21:35
big thumb up to kcchongnz with his trustworthy background to safeguard your hard earned money
2019-05-27 21:37
(US/CHN trade war doesn't matter) Philip
I think kcchongz is right this time. It is not how much you make that is important, it is the risk you take in making the money that is important.
What is risk? The lowest and safest guaranteed return is fixed deposit at 4%. This is followed by EPF at 6%. before you consider paying someone money to invest in stock market for you, you need to ask if that fund manager is able to guarantee a 10 year return minimum of 4% with guarantee protection of capital.
If the fund manager is unwilling to guarantee capital protection with guarantee interest yield, but is willing to balance that increase risk with increased return beyond 4%, then you need to look at his long term portfolio returns, as well as the long term performance of the stocks he holds, buys and sells.
If in the long run the returns of the fund manager is low and very volatile compared to just holding EPF or fixed deposit, then you are better off doing passive investing in EPF and fixed income instead.
Simple and no headache. Why climb 30 feet poles when jumping over 1 foot poles is doable?
2019-05-27 21:47
In my opinion , KCC 's advice is right . Better keep the money in EPF and work with EPF to have a monthly withdrawal plan of 8 k . Since he has RM 1.8 million , the interest of this 1.8 million is sufficient to pay him 8k a month assuming an average of 5.33 %. I think EPF can deliver this return based on past few years record .
2019-05-27 23:16
Just put in epf la....share how many can eaen consistently and with good night sleep? Most can talk cock only....
2019-05-27 23:43
kong73 > May 27, 2019 9:22 PM | Report Abuse
Take into account your medical coverage in case of poor health after retirement
========
doctors have ways to ssss money from people.
2019-05-27 23:48
I agree that sequence of return risk is very relevant for someone who is in "decumulation" (ie retirement) compared to someone who in accumulation mode (working). While John is retired, he may still have decades of investing ahead of him and stocks provide a good way for him to keep up with inflation. If John can comfortable live off 6% of his EPF assets then yes this is the easiest and safest route to go.
However, if he thinks it is not enough and perhaps he may need more due to potential medical inflation or desire to leave a legacy, there could be other options. One would be to put aside about 3 years of living expenses away in a safe instrument say bond fund/EPF and invest the rest in good undervalued stocks. This 3 year buffer can be drawn upon when the market is not so good so that he doesn't end up selling his stocks at the low point of a bear market. If the market continues to go up, then he should replenish this 3 year "bucket" with proceeds from dividends/capital gains.
2019-05-27 23:53
just consider migrating to au or nz where people are more honest and reliable. There is no such thing as Religion Race or Royalty. Once you don't face the 3 R's you will live happier and make better decisions
2019-05-28 04:43
personal safety clean air and water and no one tell you "cina balik tongsan""
2019-05-28 04:45
EPF dividends betw 5-6% per annum farbetter than bank rate & inflation. with 2 million { your EPf returns app 220K amounting to around $ 10 -12 per month } why take the risk when you have retired.
2019-05-28 08:16
Well agreed. If the returns of EPF is higher than 8k a month (or any needed monthly maintenance expenses), feel free to use them in risky tools like stock investment. Another alternative of investing in bonds and dividend play will be great if you know well for the credit market and role of interest in income play. This alternative is safer than pure stock investment but need rather high skill. All in all, EPF or Amanah Saham (the fixed price ones) are among the safest havens you can find in Malaysia.
2019-05-28 09:49
Posted by wlchew > May 28, 2019 4:43 AM | Report Abuse
just consider migrating to au or nz where people are more honest and reliable. There is no such thing as Religion Race or Royalty. Once you don't face the 3 R's you will live happier and make better decisions
The quality of life one can get from RM2.0m saving will be much lower than if he stays in Malaysia.
Everything is almost dollar-to-dollar. Unless one earns there and live there.
2019-05-28 15:24
I would consider taking out 25 to 30% to buy Singaporean reits. And maybe another 10% for China index.
2019-05-29 00:31
Also dont forget to do donations to those needy around you within your capability.Everyone got sin without realising it.
2019-05-29 00:53
Posted by ks55 > May 29, 2019 12:26 AM | Report Abuse
ks55, thanks for your comments. Valuable from one who has been there done that. Just a comment on your point no.3 below,
3. Take out your money from EPF and put into a few selected Reits. Some Reits command 6 to 10% yield at present price, and they are way below net tangible asset to serve as safety of margin. You will enjoy both recurrent income and capital appreciation.
Reits, like any other stock, are subject to market risk. for example, the performance of Malaysian REITs was uninspiring through most of 2018. Bursa’s REIT Index finished at 928.81 points on Dec 31, 2018, translating into a decline of 12.2% from 1,057.35 points on Dec 29, 2017, under-performing the benchmark FBM KLCI by nearly twice as much.
I also have other reservation of reits as in the link below,
https://klse.i3investor.com/blogs/kcchongnz/171201.jsp
2019-05-29 04:10
Posted by Choivo Capital > May 29, 2019 12:31 AM | Report Abuse
I would consider taking out 25 to 30% to buy Singaporean reits. And maybe another 10% for China index.
It depends on individual risk profile. This article is written for those who are risk averse. The aim is the saving must meet the basic requirements for the estimated number of years in retirement. He must be able to sleep well without having to worry he outlives his saving too soon due to events which are not controllable.
2019-05-29 04:17
(US/CHN trade war doesn't matter) Philip
This method is so risky I shudder.
I have yet to find a Singaporean REITs with high yields where the constant recapitalization of the reit is not required. At least with epf the shares are always par rm1. With REITs I find majority of them give you 6-10% dividends on the uptake, but on the downswing asking you to buy the rights issue, share split etc is very inefficient in the long run.
As for china index... I only advise it for those who do not know how to analyze risk and have many years more to recoup their losses.
It is sad but true, epf is most likely the best for of investing for many individuals as the profits are guaranteed by government ( in spirit if not in name). The forced savings and growing population ensures that future generations will be paying for the older ones, with or without portfolio gains.
1982 1983 to 1987 1988 to 1994 1995 1996 1997 to 1998 1999
2.50% 4.00% 5.00% 5.25% 5.50% 5.75% 5.80% 5.85% 6.60% 7.00% 7.25% 8.0% 8.5% 8.0% 7.5% 7.7% 6.7% 6.84%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
6.00% 5.00% 4.25% 4.50% 4.75% 5.00% 5.15% 5.80% 4.50% 5.65% 5.80% 6.00% 6.15% 6.35% 6.75% 6.40% 5.70% 6.90% 6.15%
Consider this, with an average of 6%, 30+ years of UNBROKEN profits, guaranteed withdrawals, no rights issue or dilution or transactional fees, if you start comparing, there is almost nothing like it in terms of return versus capital risk.
This is the best money game there is. Government funded and enforced.
>>>>>>>>
Posted by Choivo Capital > May 29, 2019 12:31 AM | Report Abuse
I would consider taking out 25 to 30% to buy Singaporean reits. And maybe another 10% for China index.
2019-05-29 05:00
(US/CHN trade war doesn't matter) Philip
In fact, I myself will be leaving my EPF returns exactly where it is and doing the same negotiation when I retire in the next few years.
The only way epf will not work is when Malaysia collapses.
I find that highly unlikely.
2019-05-29 05:04
correct me if im wrong.. isn't EPF pay dividend for up to max (ceiling) RM1M only?
2019-05-29 05:44
(US/CHN trade war doesn't matter) Philip
Where did you find that? Maybe you can consider reading up on the kwsp or calling them directly to find out more detailed information.
2019-05-29 05:50
can read them on their website tho.. thats why EPF give option to those who have savings more than RM1M to withdraw... dont think they so generous to pay dividend to
2019-05-29 06:02
yeah, better call them to clarify.. dont waste that 800k juz for nothing....haha
2019-05-29 06:05
If you buy Reits at wrong price still suffer loss. Eg Hektar bought at 1.55 left 1.11 losing 44 sen. How can sure 1.11 cannot drop below 1?
2019-05-31 23:26
not if you buy only very high quality REITS.....
there is over supply of malls and office space so naturally have to select only the best of the best.
2019-05-31 23:28
Beside reit, it is a good choice to invest in bursa or maybank since its dividend also not bad.?
2019-05-31 23:36
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CFTrader
Quote 1 : I figure that we need about a monthly income of RM8k in retirement
Quote 2 : We have RM1.8m money in our EPF
Let's do some calculation.
RM 1,800,000 x 6% (Assumption of EPF declaring 6% dividend) = RM 108,000 per year
That is RM 9,000 per month.
RM 1,800,000 x 5.5% (Recent ASM rate) = RM 99,000 per year
That is RM 8.250 per month
RM 1,800,000 x 5% (i think this consideration bad enough) = Rm 90,000 per year
That is RM 7,500 per month
______________
You better live off with EPF's dividend rather than staking the capital invest in the market.
Just an amateur point of view.
Thank you.
CFTrader
2019-05-27 21:14