[OPINION] Beyond the EPF dividend: A call for proactive financial management

THE Employees Provident Fund (EPF) recently announced a 6.3% dividend for both Conventional and Syariah savings for 2024. While this offers some relief to contributors, it should serve as a reminder of the need for proactive financial planning. Relying solely on EPF savings is no longer sufficient for long-term financial security. Individuals must take a hands-on approach to wealth management to stay resilient against economic fluctuations and inflation.

Understanding EPF Dividend Fluctuations and the Need for Diversification

EPF dividend rates directly influence retirement savings and purchasing power. A 6.3% return is favourable, but economic shifts, market fluctuations, and inflationary pressures can quickly alter financial landscapes. High dividends signal strong economic growth, while lower rates may indicate slowdowns. Rather than passively relying on EPF, individuals should diversify investments and reassess financial goals to maintain long-term stability.

With rising living costs and economic uncertainties, passive saving is no longer an option. To build financial resilience, individuals should explore:

Stocks, bonds, Real Estate Investment Trusts (REITs), and mutual funds for diversification.
Private Retirement Schemes (PRS) for additional tax benefits and compounding advantages.
Multiple income streams such as dividends, rental income, or side businesses.
Blue-chip dividend stocks for steady income and capital growth.
Exchange-Traded Funds (ETFs) for diversified market exposure.
Gold and commodities as inflation hedges.
Insurance-based savings plans for financial security.

Regular portfolio reviews and rebalancing for optimised returns.
Enhancing financial literacy for informed decision-making and maintaining disciplined savings habits to ensure financial consistency.

Adjusting Financial Strategies for Different Economic Conditions

A 6.3% EPF dividend is encouraging, but financial complacency is risky. Economic conditions remain unpredictable, and over-reliance on EPF alone can leave individuals vulnerable. Key strategies include:

Increasing voluntary EPF contributions when rates are favourable.
Investing in higher-yielding assets like stocks, REITs, and mutual funds to supplement EPF returns.
Maintaining an emergency fund for financial flexibility.
Managing expenses efficiently and reducing unnecessary debt.

For retirees, EPF dividend changes impact income stability. A balanced asset allocation should include:

50%-60% in low-risk assets (fixed deposits, bonds, and cash reserves).
20%-30% in moderate-risk investments (REITs and dividend-paying stocks).
10%-20% in cash reserves for liquidity.

Young professionals should maximise EPF benefits while diversifying investments by allocating 10%-20% of income to voluntary contributions and 15%-30% to other investment vehicles.

For an individual with RM200,000 in EPF, a 6.3% dividend yields RM12,600 annually, compared to RM10,000 at a 5% rate. While the difference may seem small, it significantly impacts long-term wealth accumulation. Regardless of the rate, maintaining a diversified investment portfolio is essential for financial security.

The 6.3% EPF dividend for 2024 is a positive outcome, but it should not lead to complacency. Strategic wealth management—through diversification, informed decision-making, and adaptation to economic shifts—is key to long-term financial stability. A well-rounded financial plan extends beyond EPF, ensuring security in an ever-changing economic landscape.

Dr Paul Anthony Maria Das is a Senior Lecturer for the School of Accounting and Finance at Taylor’s Business School, Faculty of Business and Law, Taylor’s University. Taylor's Business School is the leading private business school in Southeast Asia for Business and Management Studies based on the 2024 QS World University Rankings by Subject and has received the Association to Advance Collegiate Schools of Business (AACSB) accreditation.

** The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the position of Astro AWANI.