Micro-retirement: Living the dream or draining your EPF?

This innovative approach significantly impacts their long-term financial security, particularly concerning their pension funds, such as Malaysia's Employees Provident Fund (EPF).

L.R TURNER
04 Feb 2025 09:00am
Photo for illustrative purposes only. Photo: Canva
Photo for illustrative purposes only. Photo: Canva
Born between 1997 and 2012, Gen Z is redefining retirement by embracing 'micro-retirement'—taking short, frequent breaks from their careers to focus on personal interests, travel, or simply to recharge.

This innovative approach significantly impacts their long-term financial security, particularly concerning their pension funds, such as Malaysia's Employees Provident Fund (EPF).

Micro-retirement, which involves taking multiple mini-retirements throughout one's career instead of waiting for a traditional retirement, is a concept that resonates deeply with Gen Z.

This generation places a strong emphasis on mental health and work-life balance, valuing these aspects over simple financial accumulation.

Technological advancements and remote work capabilities have further empowered Gen Z to take career breaks while remaining connected to the workforce.

Unlike previous generations, they prioritise experiences and personal growth over accumulating wealth, underscoring a significant cultural shift in lifestyle choices.

While micro-retirement offers clear lifestyle benefits, it poses challenges for financial security, especially in terms of contributions to Malaysia's EPF.

Frequent career breaks can lead to irregular contributions, affecting the compound growth of retirement savings over time.

Though specific Malaysian studies on this topic are lacking, research from the Transamerica Center for Retirement Studies suggests that Gen Z often underestimates their retirement needs.

This oversight could be problematic if they continue taking extended breaks without strategic financial planning.

Through its Retirement Income Adequacy Framework published last year, EPF estimated that retirees need at least RM1.4 million to retire comfortably.

However, as of October 2024, only 36 per cent of active members have reached the basic savings level of RM240,000 by age 55.

Inflation further complicates this scenario, eroding the purchasing power of savings.

For example, RM1 million in 2007 is equivalent to RM712,000 today, necessitating RM1.4 million to maintain similar purchasing power, translating to RM6,000 per month over 20 years.

EPF savings depend heavily on continuous employment.

Frequent breaks may cause Gen Z to miss employer contributions, key components of retirement savings.

Despite these challenges, Gen Z can adopt several strategies to enjoy micro-retirements without sacrificing financial security by enhancing their financial security through selecting flexible retirement accounts that allow for adaptable contributions during periods of reduced income.

Leveraging automated savings tools is also crucial, as these ensure consistent contributions even during job transitions.

Additionally, improving financial literacy empowers Gen Z to make informed decisions, effectively balancing short-term desires with their long-term financial security.

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