It is not merely a financial goal; retirement planning is a requirement for a future free of worry and secure. Early starters could make huge combinations, whether on small pay or high wages. One of the most reliable methods that has put dividends in building up a retirement corpus is under the Employees’ Provident Fund (EPF) managed by the Employees’ Provident Fund Organisation (EPFO).
Even with a minimal basic salary of Rs 10,000, EPF can accumulate a retirement fund nearing Rs 2 crore through disciplined investment over some years. Here is a more detailed breakdown of working it out and why EPF remains one of the preferred pension investments for salaried people.
Why is it a Worthy Retirement Investment?
Unlike market-linked schemes, they are never free from volatility and risks. Guaranteed returns and tax benefits come with EPF. Here is what it has:
- Safety & Stability: You do not need to think about the security of your hard-earned money in this government scheme.
- Higher Interest Rates: Each year, EPFO announces the interest rates, which are normally considered to be higher than other instant savings schemes.
- Employer Contribution: For every rupee you put into EPF, your company matches it so that you can double your savings for retirement.
- Tax Benefits: Up to Rs 1.5 lakh contribution deduction is included under Section 80C and tax-free under certain conditions when the maturity amount is applied.
How Does EPF Operate?
Under the EPF scheme:
Your basic salary is deducted every month at 12%.
12% is contributed by the employer in addition to this:
- 8.33% goes into the EPS.
- 3.67% is deposited in your EPF account.
So if your basic salary level is Rs 10,000
- Your share: Rs 1,200/month
- Employer’s EPF Contribution: Rs 367/month
- Total Monthly EPF Deposit: Rs 1,567
This amount compounds interest with time as personal salaries go up yearly.
EPF Eligibility: Who stands to benefit?
- Mandatory for employees drawing less than Rs 15,000/month in an establishment with 20 or more employees.
- Optional for higher wage employees (above Rs 15,000/month).
- Establishments of less than 20 employees may also avail themselves of the EPF facility.
When Can I Make Withdrawals from EPF?
Your EPF savings can be claimed in the following situations:
- Retirement (58 years or above).
- Severance from employment or transfer (with a certain waiting time).
- Financial emergencies such as medical treatment, home loan repayment, etcetera.
- In case of the employee’s demise, the amount will be given to the beneficiaries.
How to Transform a 10,000 Salary into 2 Crore
Let us assume:
- Starting age: 23 years
- Retirement at age: 60 years
- Service tenure: 37 years
- Basic salary: Rs 10,000 (10% annual increment)
- Contribution to EPF: Rs 1,567/month (Rs 1,200 employee + Rs 367 employer)
Projected Growth Over 37 Years
Integrated over the years: about Rs 68.5 lakh, with
- Interest earned: about Rs 1.3 crore
- Final maturity amount: about Rs 1.98 crore or almost Rs 2 crore.
- This considers a constant EPF interest rate, which has historically varied between 8% and 8.5%.