Based on a recent EPF study, 50% of retirees exhaust their funds within five years of retirement.
In light of the rising cost of living, longer life expectancy and a higher inflation rate, this comes as no surprise.
One alternative for Malaysians to boost their chances of retirement survival is to grow their EPF contributions at a faster rate.
Under the EPF Members’ Investment Scheme (EPF MIS), members can voluntarily transfer a portion of their savings from Account 1 for investment in unit trusts or through private mandate managed by appointed Fund Managers Institutions (FMI).
To invest or not to invest – that is the question.
You want to be cautious here. Honestly, only a handful of funds can match the performance shown by EPF. Additionally, EPF is capital guaranteed investment vehicle with minimum 2.5 Per Cent Dividend annually. This makes EPF a secure long-term investment, especially for retirement savings.
Taking your EPF savings and investing it can be a profitable move – only if you are putting it in an investment that generates a higher yield that EPF. Be selective and do plenty of research before investing. Note that investing in unit trust funds also come with additional fees and charges. The bulk of the fees is charged in the first year.
Now let’s look into  the 3 common misconceptions:-

Misconception 1

The first mistaken belief is that our Employees Provident Fund (EPF) savings would be enough to last us a lifetime. But is that the truth or just wishful thinking? It is essential that we understand that EPF funds are basically an alternative savings plan conservatively managed to generate stable and moderate returns. It serves to maintain the purchasing power of our retirement savings by keeping pace with the prevailing inflation rate. Furthermore,  EPF has over the years, allow members to withdraw their EPF for various investment purposes ( eg. For housing and education). Thus, reducing the retirement bucket.

Misconception 2

The second misconception is to use the EPF dividend rate as a benchmark of investment performance. Recently,  EPF declared a dividend of 5.70% for 2016, a decrease over the previous year’s 6.4% dividend. Most contributors should be satisfied with a dividend rate of above 4% as it provides a better yield than keeping their money in the bank.

When you place two different portfolios side by side, there will be times when one portfolio does very well and vice versa depending on prevailing market cycles. Thus, in a bearish stock market, investors tend to appreciate the consistent 4%-6% dividend rate from the EPF. But when the stock market performs well, investors wonder why the EPF’s performance hardly moves up by the same amount. This is because, in EPF, its asset allocation is very different from an equity unit trust fund.

EPF portfolio comprises primarily bond portfolio with around 60% and the balance 40% in equity. Their equity portion accounts are conservatively managed.

Misconception 3

Finally,  a question of why the return of a unit trust fund is so much more volatile than the EPF fund’s return. In fact, investments in the aggressive unit trust fund will inherit a higher level of volatility level than the conservative fund. A fund manager in the equity unit trust fund will allocate between 70% to 90% of their assets in stocks, thereby exposing the portfolio’s returns to higher volatility than a bond unit trust fund.

What Can Be Done?

Just as Rome was not built in a single day, our retirement nest cannot be completed overnight as well. It takes many years of careful planning and discipline to save up for a secure and comfortable retirement. Therefore, it is important that we start planning for our retirement as soon as possible.