Why Lump-Sum EPF/KWSP Withdrawals Are Dangerous & Risky for the Long Term
•By Mahersaham Team
Artikel ini juga tersedia dalam Bahasa Melayu
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For most Malaysians, retirement comes with one major decision: what to do with your EPF (KWSP) money?
And the reality is, almost everyone makes the same choice — withdraw everything at once.
The problem is, Malaysians are now living longer. Life expectancy continues to rise, with many living into their 70s and beyond. This means retirement savings need to last decades, not just a few years like before.
Under the current EPF system, contributors can withdraw their entire savings upon reaching age 55 or 60.
Statistics show that approximately 97% of members choose to withdraw everything, even though the majority retire with savings of less than RM50,000.
If spending RM1,000 per month, this amount would only last roughly four years.
Financial planner V Rajendaran explains that most retirees exhaust their savings within three to five years after retirement.
Without a steady income and strong financial discipline, many tend to overspend or make unsuitable investments.
According to him, the culture of lump-sum withdrawals not only accelerates the depletion of funds but also increases the risk of poverty in old age.
The life expectancy of Malaysians is currently around 76 years, meaning many need a source of income for 20 years or more after retirement.
Economist Madeline Berma has stated that the rising cost of living makes the situation even more challenging.
Repeated withdrawals — including through the Flexible Account — indicate that many are using their EPF savings to cover daily expenses.
Since the EPF restructuring in May 2024, contributions are now divided into three accounts:
The Flexible Account allows withdrawals at any time, aimed at helping contributors during emergencies.
During the pandemic, the government also permitted special withdrawals through the i-Lestari, i-Sinar and i-Citra schemes.
More than RM145 billion was withdrawn by 7.3 million members due to job and income losses.
Although the measure was necessary at the time, its effects are expected to be long-lasting.
The combination of longer life expectancy, rising living costs and lump-sum withdrawals risks worsening retirement problems in the future.
Beyond the issue of depleted savings, lump-sum EPF withdrawals also open the door wide to fraud (scams). Many retirees who have just received large sums of money become targets for fake investment syndicates, get-rich-quick schemes, unlicensed forex operations and online scams.
With limited financial literacy and an urgent desire to find quick returns, some contributors fall prey to promises of high returns without understanding the real risks. In many cases, retirement savings accumulated over decades vanish within just a few months.
More alarmingly, there are cases where retirees are persuaded by "investment agents" or their own acquaintances to invest using their entire EPF withdrawal, supposedly as working capital or short-term investments.
Without the protection of monthly income and without any control mechanism, victims not only lose their money but are forced to depend on their children or government aid for survival.
This situation demonstrates that the problem of lump-sum withdrawals is not merely an issue of financial discipline, but also an issue of social protection and financial security for the elderly.
Many other countries restrict full withdrawal of retirement savings to protect retirees.
This approach aims to ensure retirement savings do not run out too early.
In Singapore, a portion of savings is automatically converted into monthly income starting at age 65 — there is no option to withdraw everything.
In Germany, public pensions are paid monthly for life.
Sweden adjusts pension benefits according to the life expectancy of its citizens, so the system remains sustainable and fair.
Rajendaran suggests that Malaysia should mandate partial annuitisation — a portion of savings is converted into fixed income for basic needs, while a small portion can still be withdrawn.
He also proposes that EPF develop annuity-like products that guarantee lifetime income, in addition to strengthening financial education before retirement.
As Malaysians live longer with ever-shrinking savings, the lump-sum withdrawal model is clearly no longer sustainable.
Global experience shows that structured payment systems are not meant to restrict freedom, but to ensure retirees do not run out of money before their lives end.
The future of Malaysia's retirement system requires a shift in focus — from one-time withdrawals to guaranteed long-term income.
Source: NST Online
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When you withdraw your entire EPF savings in a lump sum, you lose the benefit of compounding returns and regular income distribution. Statistics show that 97% of EPF members who withdraw everything exhaust their savings within 3 to 5 years, leaving them financially vulnerable for the remainder of their retirement.
The majority of Malaysians retire with EPF savings of less than RM50,000. At a spending rate of RM1,000 per month, this amount would only last approximately four years — far shorter than the 20+ years of retirement most people can expect given Malaysia's average life expectancy of 76 years.
Since the EPF restructuring in May 2024, contributions are divided into three accounts: the Retirement Account (75%), the Sejahtera Account (15%), and the Flexible Account (10%). The Flexible Account allows withdrawals at any time and is designed to help contributors during financial emergencies.
Singapore mandates lifetime monthly payments through CPF Life, Germany only offers monthly pensions with no lump-sum option, Sweden adjusts pension payments based on life expectancy, and the UK requires financial advice before allowing flexible withdrawals. These systems ensure retirement savings last throughout a retiree's lifetime.
Partial annuitisation means converting a portion of your retirement savings into a guaranteed regular income stream for basic needs, while keeping a smaller portion available for withdrawal. Financial planners recommend this approach for Malaysia to prevent retirees from spending all their money too quickly while still allowing some financial flexibility.