Today, we’re diving into a topic that not many people talk about: retirement planning. We get it, it’s not exactly as interesting as a Sam Bankman-Fried scandal, but it’s something we can’t afford to ignore.
The good news is, here in Malaysia, we’ve got a couple of solid options for our retirement – the Employee Provident Fund (EPF) and the Private Retirement Scheme (PRS). Each has its own unique features and benefits. In this article, we’ll break down the differences and similarities.
💲Mandatory vs Voluntary Contribution
EPF is a government-managed mandatory savings plan for employees. Both employees and employers contribute, with employees contributing 11% of their salary and employers contributing 13%. This mandatory setup ensures consistent savings.
On the other hand, PRS is a private investment strategy that allows individuals to contribute voluntarily. Various financial institutions offer PRS funds, offering flexibility in contribution amounts.
🌱Return on Investment
EPF typically offers stable and moderate returns. The fund’s returns are declared annually by the EPF board and are generally derived from conservative investments, such as fixed-income instruments and safe financial instruments.
PRS offers the potential for higher returns compared to EPF. This is because PRS provides a range of investment options, allowing contributors to choose funds with varying risk profiles. While this potential for higher returns exists, it also comes with greater risk, as PRS investments can include equities and other assets with market fluctuations.
💼Flexibility
With EPF, you have limited say in how your money is invested. EPF mainly uses safe investment options to keep your savings secure. However, it does allow you to take out some money for important events or emergencies.
On the other hand, PRS gives you more control over where your money goes. You can choose PRS funds based on your comfort with risk, financial goals, and investment preferences. PRS offers various investment choices, including safe ones, balanced options, and growth-focused funds. While PRS encourages saving for the long term, there are some limits on taking out money. But it does offer flexibility in certain situations such as housing or health purposes.
💰Tax Benefits
Contributions to EPF are tax-exempt, which means that individuals can reduce their taxable income by contributing to their EPF account. This tax benefit provides immediate financial relief.
Contributions to PRS are eligible for additional tax relief, providing another layer of tax benefits. This makes PRS an attractive option for those looking to reduce their overall tax burden while saving for retirement.
👵🏻👴🏻Building a Solid Retirement Foundation
Both EPF and PRS are designed for long-term retirement savings, aiming to build a substantial nest egg over your working years for a comfortable retirement.
You can use EPF and PRS together as complementary options, leveraging EPF’s stability and PRS’s potential for higher returns based on your financial circumstances and retirement goals.
Key Takeaway
While EPF offers stability and is mandatory, PRS offers diversification, flexibility, and higher return potential. Relying solely on EPF might not be enough to tackle future challenges like rising living costs and inflation in Malaysia. Therefore, incorporating PRS into your retirement savings strategy can provide a valuable opportunity for a financially comfortable retirement. Together, EPF and PRS create a comprehensive approach to retirement planning that addresses both stability and growth potential.
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