I stumbled upon this post on Reddit r/MalaysianPF. And with such a “flex” post, it’s hard not to garner attention online.
It’s not hard to imagine that the comments will include both congratulatory and shit posts. But on top of that, there will also be people asking how it can be done.
The author did divulge how she did it in the comments. She was blessed with a high-paying job, earning RM 50k a month, and her bonus ranges between RM 200-300k. By maximising her Employees Provident Fund (EPR) contributions at RM 100k with voluntary contributions during her bonus month, it isn’t that hard to see how she arrived at her current state.
On top of that, she also mentioned that it took her 10 years to reach RM 1 million, while the next RM 1 million took only 3 years. This is the power of compounding, something many other EPF or Central Provident Fund (CPF) contributors can relate to, albeit on a smaller quantum if your savings aren’t in the 6 or 7 figure range.
Simulating Redditor’s salary trajectory and EPF
While everyone is asking how she achieved it, someone like me, who can be competent in simulating compounded interest, decided to model the author’s salary trajectory and EPF contribution.
At age 35, she’s earning RM 50k a month, and getting RM 200-300k in terms of bonus. So safe to assume that she is getting at least 4 month’s bonus. We know her EPF hit RM 1 million after 10 years of working, and nearly RM2 million three years later.
Best on my best knowledge, I simulated the below.
At the age of 22, she had 0 in her EPF as she had just started working. She mentioned staying with the same company. So any best guesstimate is that she is taking home a fresh graduate’s salary that is way higher than the average Joe. I assumed a starting pay of RM 5k per month, with a static 3-month bonus each year.
Row 10 represents her salary increment simulation. The colours denote her salary increase. From ages 23 till 29, she received a salary increment of 25%, a 20% increment from ages 30-32 and a 10% increment from ages 33-35. This is how we arrived at a monthly wage of RM 50.3k, quite close to her current salary. Her compound annual growth rate (CAGR) over the past 13 years will be a whopping +19.43%.
Row 11 shows her annual salary together with her average 3-month bonus. Row 12 shows her EPF mandatory contribution of 24%, 11% by employee and 13% by employer. This calculation doesn’t account for the possibility that she could be working for a prestigious firm or corporation that could be offering additional employer contribution as perks.
And let’s assume she started maxing out her EPF self contribution at the age of 30. She would have added an additional RM 100k each year until she reaches age 35.
The EPF contribution (Row 4) is basically the same as Row 12. Row 6 calculates the flat 6% returns she received, on top of her carryover amount from the previous year together with her current year contribution.
After 10 years of work, at age 32 years old, she has achieved RM 1.1 million in her EPF. And 3 years later, with her higher pay and continued self-contributions, she achieved RM 1.92 million.
The EPF system is not broken. Her pay is
Many might be surprised by the amount she has accumulated in her EPF. The EPF system is not broken. The long term average 6.5% return is decent, and a large enough capital would see it compounded into a nice sum when given enough time.
The same concept can be applied to Singapore’s CPF, albeit the lower annualised returns but do take note that EPF returns are investment returns, and comes with risk. CPF on the other hand is fixed interest bearing.
The Redditor is blessed with a monthly pay of RM 50k, and is considered the top 1% in the country in terms of take-home pay.
A monthly salary of RM50k could even place her within the the top 0.5% of earners.
Even her RM 2 million EPF is considered an outlier.
Reality-wise
The RM 2 million flex might create some insecurity among the masses. But rather than lament or compare ourselves against an outlier, I think its best to sense-check against the mean and median.
I think any amount above RM 150 k is already considered above average, based on last year’s statistic. Within each age group, so long if you have above average savings, I think you are heading in the right direction.
All roads lead to Rome
Businessmen and savvy investors wouldn’t be bothered by the EPF flex as they could have derived and are holding their wealth in other investment assets and classes. The top 50 richest Malaysians, for instance, have net worth denominated in millions and billions.
The Redditor, albeit being an employee, has managed to accumulate a respectable amount of wealth alongside an incredible pay package. Yes having a great pay package has accelerated her journey to becoming a millionaire, without her having to take on the considerably large and ambiguous risks often faced by entrepreneurs.
If you aren’t earning enough to fast track your retirement sum, perhaps up-skill and enhance your competency to stay relevant or even pivot your career. Else take the leap of faith to kick-start your own business to scale your income.
It may seem daunting and far out of reach. But capitalism and compound interest isn’t exactly rocket science. If you believe and make it work in your favour, it really isn’t that hard to hit a 7-digit net worth!
It’s the process and time that kills off the impatient ones.
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