Analysis of the Effect of Pre-Retirement Withdrawals: VBA Simulation

Authors

  • Muhammad Rifa’ie Khalid Ibni Walid Faculty of Science and Technology, Universiti Sains Islam Malaysia, 71800 Nilai, Negeri Sembilan, Malaysia. https://orcid.org/0009-0003-7464-8352
  • Mazlynda Md Yusuf Faculty of Science and Technology, Universiti Sains Islam Malaysia, 71800 Nilai, Negeri Sembilan, Malaysia.
  • Sukono Department of Mathematics, Faculty of Mathematics and Natural Sciences, Universitas Padjadjaran, Jatinangor, Sumedang, Jawa Barat, 45363, Indonesia.

DOI:

https://doi.org/10.33102/mjosht.v10i2.417

Keywords:

Employees Provident Fund (EPF), Pre-retirement withdrawals, COVID-19 withdrawals, Retirement income, Replacement Rates, Simulation

Abstract

Malaysia’s trajectory towards becoming an aging nation, coupled with the current healthy life expectancy (HALE) and overall life expectancy, has caused the population to face a higher risk of inadequate retirement income. Private sector workers are obligated to save through the Employees Provident Fund (EPF). However, recent pre-retirement withdrawal policies during the COVID-19 pandemic have raised concerns about future retirement income adequacy. This study simulated accumulated EPF values for SPM and Degree holders, analysed withdrawal effects, determined the income adequacy ratio using replacement rates, and identified poverty status among retirees using VBA Excel. While Degree holders demonstrated the highest savings and expected retirement income, SPM holders had higher replacement rates. Pre-retirement withdrawals had a greater impact on SPM holders due to their lower accumulated value at retirement. According to the scenarios simulated, the highest reduction is 26.76 percent for SPM and 20.85 percent for Degree. Even though none of the analysed scenarios resulted in income during retirement being lower than the poverty line income, they may have a high chance of facing insufficient income for a comfortable retirement year. Hence, policymakers should carefully monitor, control, and plan available and future pre-retirement withdrawal policies, as increased withdrawals can shift retirees’ situations from adequate to inadequate retirement income.

Downloads

Download data is not yet available.

Author Biography

Mazlynda Md Yusuf, Faculty of Science and Technology, Universiti Sains Islam Malaysia, 71800 Nilai, Negeri Sembilan, Malaysia.

Risk & Analytics Research Group, Faculty of Science and Technology, Universiti Sains Islam Malaysia, Bandar Baharu Nilai, Nilai, 71800, Malaysia.

References

Alaudin, R. I., Ismail, N., & Isa, Z. (2015). Projection of retirement adequacy using wealth-need ratio: A case study in Malaysia. AIP Conference Proceedings, 1643, 152–159. https://doi.org/10.1063/1.4907438

Argento, R., Bryant, V. L., & Sabelhaus, J. (2013). Early Withdrawals from Retirement Accounts During the Great Recession.

Attorney General’s Chambers. (2022). Minimum Wages Order 2022. https://lom.agc.gov.my/act-view.php?language=BI&type=pua&no=P.U.%20(A)%20140/2022

Bank Negara Malaysia. (2021). Prestasi Ekonomi Suku Keempat Tahun 2020.

Department of Statistics Malaysia. (2021a). 600,000 isi rumah M40 jatuh ke kategori B40 akibat pandemik. Department of Statistics Malaysia.

Department of Statistics Malaysia. (2021b). PKP: Isu dan Cabaran Pengumpulan Data di Negeri. Department of Statistics Malaysia, 1.

Department of Statistics Malaysia. (2021c, August 6). Household Income Estimates and Incidence of Poverty Report, Malaysia, 2020. Department of Statistics Malaysia. https://www.dosm.gov.my/portal-main/release-content/household-income-estimates-and-incidence-of-poverty-report-malaysia-2020

Department of Statistics Malaysia. (2022a). Poverty and Sustainable Development Goals in Malaysia. Department of Statistics Malaysia. https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwjPqbW5nrn_AhUJl1YBHWODCQwQFnoECBIQAw&url=https%3A%2F%2Fwww.dosm.gov.my%2Fuploads%2Fcontent-downloads%2Ffile_20220929155525.pdf&usg=AOvVaw3atkPsjAqFG73E9b2Xaljv

Department of Statistics Malaysia. (2022b, August 17). Poverty line income to be updated. Department of Statistics Malaysia. https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwj_kIzNorn_AhWVC94KHZcgC5AQFnoECDEQAQ&url=https%3A%2F%2Fwww.dosm.gov.my%2Fuploads%2Fcontent-downloads%2Ffile_20220928093731.pdf&usg=AOvVaw2AFhtzD-6fZtUO-9LX45TR

Department of Statistics Malaysia. (2022c, September 28). Abridged Life Tables, 2020-2022. Department of Statistics Malaysia. dosm.gov.my/portal-main/release-content/abridged-life-tables-2020-2022

Employees Provident Fund. (2020). Rising to The Occasion Annual Report 2020. https://www.kwsp.gov.my/annualreport2020/pdf/[ENG]KWSP_AR2020.pdf

Employees Provident Fund. (2021a). Advancing Aspirations Inspiring Growth Integrated Annual Report 2021. https://lom.agc.gov.my/act-view.php?language=BI&type=pua&no=P.U.%20(A)%20140/2022

Employees Provident Fund. (2021b, February 11). KWSP sedang dalam Proses Memansuhkan Kriteria i-Sinar. Employees Provident Fund. https://www.kwsp.gov.my/en/web/guest/w/epf-in-the-process-of-removing-i-sinar-criteria

Employees Provident Fund. (2023a). Mandatory Contribution. Employees Provident Fund. https://www.kwsp.gov.my/member/contribution/mandatory-contribution

Employees Provident Fund. (2023b). Monthly Contribution Rate (Third Schedule). Employees Provident Fund. https://www.kwsp.gov.my/ms/employer/contribution/all-about-your-responsibility#thirdRateSchedule

Haveman, R., Holden, K., Romanov, A., & Wolfe, B. (2007). Assessing the maintenance of savings sufficiency over the first decade of retirement. International Tax and Public Finance, 14(4), 481–502. https://doi.org/10.1007/s10797-007-9027-y

Internal Revenue Service. (2022, September 19). Retirement Topics - Exceptions to Tax on Early Distributions. Internal Revenue Service. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions

JobStreet. (2022). Salary Report 2022. https://www.jobstreet.com.my/en/cms/employer/wp-content/themes/jobstreet-employer/assets/pdf/MY-SalaryReport-R3.5-25thJan2022-final.pdf

Knoef, M., Been, J., Alessie, R., Caminada, K., Goudswaard, K., Kalwij, A., Antolín, P., Beetsma, R., Bovenberg, L., Buetler, M., Moscarola, F. C., Den Butter, F., Eenkhoorn, E., Geurts, B., Knottnerus, A., Kok-De Vries, S., Payet, S., Ter Rele, H., Spoor, L., … Yermo, J. (2014). Measuring Retirement Savings Adequacy; developing a multi-pillar approach in the Netherlands *.

Life Insurance Association Malaysia. (2018). Mortality Studies of Malaysian Assured Lives from 2011 to 2015 Summary Report.

MacDonald, B. J., Osberg, L., & Moore, K. D. (2016). How Accurately Does 70% Final Employment Earnings Replacement Measure Retirement Income (In)Adequacy? Introducing the Living Standards Replacement Rate (lsrr). ASTIN Bulletin, 46(3), 627–676. https://doi.org/10.1017/asb.2016.20

Masud, J., & Zainalaludin, Z. (2018). Gender And Poverty Among Elderly In Malaysia. Archives of Business Research, 6(12). https://doi.org/10.14738/abr.612.5800

Md Yusuf, M. (2012). Women and Pensions in Malaysia: Assessing The Impacts of Disruptions in Working Life.

Md Yusuf, M., Yazis Ali Basah, M., & Suhaylah Yusoff, Y. (2014). Pre-Retirement Withdrawal in EPF: An Exploratory Study of Employees in Malaysia. In Australian Journal of Basic and Applied Sciences (Vol. 8, Issue 3). www.ajbasweb.com

Mohd Jaafar, N. I., Awang, H., Mansor, N., Jani, R., & Abd Rahman, N. H. (2021). Examining Withdrawal in Employee Provident Fund and its Impact on Savings. Ageing International, 46(1), 70–82. https://doi.org/10.1007/s12126-020-09369-8

Peng Tey, N. (2002). Social, Economic and Ethnic Fertility Differentials in Peninsular Malaysia. https://www.researchgate.net/publication/237803782

Pensions at a Glance 2017. (2017). OECD. https://doi.org/10.1787/pension_glance-2017-en

Sobieszczyk, T., Knodel, J., & Chayovan, N. (2003). Gender and wellbeing among older people: Evidence from Thailand. Ageing and Society, 23(6). https://doi.org/10.1017/S0144686X03001429

Suruhanjaya Perkhidmatan Awam Malaysia. (2023a). Ijazah Sarjana Muda/ Sarjana/ Doktor Falsafah. Suruhanjaya Perkhidmatan Awam Malaysia.

Suruhanjaya Perkhidmatan Awam Malaysia. (2023b). Pembantu Tadbir (Perkeranian/Operasi) Gred N19. Suruhanjaya Perkhidmatan Awam Malaysia.

The Organisation for Economic Co-operation and Development (2020), OECD Pensions Outlook 2020, OECD.

The World Bank. (2020, November 24). A Silver Lining: Productive and Inclusive Aging for Malaysia . The World Bank. https://www.worldbank.org/en/country/malaysia/publication/a-silver-lining-productive-and-inclusive-aging-for-malaysia

The World Bank. (2023). Poverty and Inequality. The World Bank.

Toronto-Dominion Bank. (2023). Making RRSP Withdrawals: What You Should Know. Toronto-Dominion. https://www.td.com/ca/en/personal-banking/products/saving-investing/registered-plans/rsp/rrsp-withdrawal-rules

World Health Organization. (2020). Healthy life expectancy (HALE) Data by country. World Health Organization. https://apps.who.int/gho/data/view.gisah.HALEXv?lang=en

World Health Organization. (2023). Pneumonia. World Health Organization.

Downloads

Published

2024-10-08

How to Cite

Muhammad Rifa’ie Khalid Ibni Walid, Mazlynda Md Yusuf, & Sukono. (2024). Analysis of the Effect of Pre-Retirement Withdrawals: VBA Simulation. Malaysian Journal of Science Health & Technology, 10(2), 107–116. https://doi.org/10.33102/mjosht.v10i2.417

Issue

Section

Mathematics