When market condition remains volatile, performance of MPF funds will also be inevitably affected – which particularly affect those approaching retirement and planning the best use of their MPF accrued benefits. Luckily, starting from February 2016, members reaching the age of 65 or retiring earlier at 60 is possible to withdraw their MPF benefits by instalments. What are the benefits of this new measure, and what should members look out for? Find your answers below.
Benefits of withdrawal by instalments
Time your withdrawals according to market conditions
Should members withdraw their MPF benefits in a volatile market, under the old arrangement, it would include selling all MPF investments potentially at a market low, which in turn result in losses. There is no chance of members to recoup those losses. Under the new arrangement, members however may choose to withdraw part of the MPF benefits and leave the rest in the account for continued investment, and sell them only when the bull market reemerges.
Leverage the compounding effect to grow your investments
According to recommendations from the World Bank, MPF is only one part of retirement reserve. As the life expectancy of Hong Kong people lengthens, MPF alone may not be sufficient to pay for all post retirement living expenses.
If the balances are left in the account for continued investments, members can benefit from the compounding effect and enjoy continued growth of their savings. For example if a member has HK$2.5 million MPF balance at retirement, withdrawal of the full lump sum will last the member around 13 years assuming HK$15,000 is spent every month while without accounting for inflation nor re-investment. If the member opt to withdrawal by instalments instead, taking out the same amount of HK$15,000 per month but leaving the rest in the account for continued investment, the entire sum will last the member up to 23 years – an additional 10 years (assuming 5% p.a. growth)!
Four free withdrawals, remember the fine print
When members withdraw their MPF benefits under the Withdrawal by Instalments arrangement, they should note that MPFA only require trustees to provide the first four withdrawals at no charge to the members. That means some trustees may levy charges on any subsequent withdrawal. Nevertheless, some trustees may allow unlimited free withdrawals, and members should read the fine print to avoid misunderstanding. In addition, if retirees have more than one MPF account, they should consider consolidating them for easier management and withdrawal.
Consider your investment experience and balance your risks
MPF is a form of investment, and therefore you should regularly review your portfolio even after retirement. Should you find yourself at a loss, don't hesitate to seek advice from professionals. Retirement may still be some time away but every adjustment in the MPF system will directly impact each and every of us. Learn all you can and share your knowledge with your fellow to-be-retirees – and together enjoy the fruits of better wealth management!