Historical EPF and FD Returns

EPF is not a bad retirement fund

1. Past 10 years (2013-2022) EPF returns has ranged 5.20% to 6.90%, averaging 6.04%.
   
2. If you invest your own retirement funds (defined as monies you won't touch until retirement with at least 10 years horizon or longer), the benchmark should be 7% per annum. (1% higher than 6%, as reward for doing it yourself)
   
3. If you can't consistently beat 7%, you are better off doing nothing.  Just deposit in EPF and let EPF earn 6% for you with no work on your part.
   

FD is much less suitable for long term Wealth Accumulation

1. Past FD rates (standard shelf rates, major banks) has clearly never beaten EPF dividend rates yearly nor cumulatively.
   
2. If you have excess retirement funds in FD, consider some voluntary top-up in EPF, unless you consistently beat 7% per annum. 

FD rates barely beat inflation over the long term

1. Chart shows most of the times, inflation ranges from 2%-4% averaging say 3% per annum.  Sometimes, it falls below 2% but reported headline inflation rates above tend to be lower than personal inflation rates actually experienced by many Malaysians.
   

Inflation is the silent tax man

Compare 2 scenarios:

Scenario 1 - FD earns 3% per annum, returns not taxable, but inflation is also 3% per annum.

Scenario 2 - FD earns 3% per annum, returns taxable at 100% tax rate, but inflation is 0% per annum.

Scenario 2 is clearly outrageous - if the government took 100% of your entire FD rates, everybody would be angry since you earn nothing, but if inflation is 0% per annum, any spending requires you to dip into capital.

Scenario 1 with zero tax may look good, but if inflation is 3% per annum, any spending you do will also require you to dip into capital, since interest just catches with inflation.  Your original capital buys exactly the same goods 10 years ago, even with FD returns.

 

In short:  Inflation is the silent tax-man

Moral of the Story:  You need to earn higher than inflation, to grow your retirement savings, and be able to buy more goods and services from your original capital.