Did you know? You can easily retire with crores of rupees in your account by doing nothing extra other than doing your job! But there is a condition – You should be working in an organisation covered by the Employees Provident Fund (EPF) Scheme. It is mandatory for establishments covered by the EPF scheme to make a monthly contribution of 12% of Basic Salary + Dearness Allowance on behalf of the employee and a matching contribution of their own to the same account.
From the employer’s share, 8.33% goes towards the Employees Pension Scheme (EPS) and the remaining to the PF account of the employee. The mandatory contribution rule takes the burden of investing for retirement off employees’ shoulders to some extent.
EPF returns calculation shows that if someone is simply doing his/her job till retirement and never withdraws from the EPF account, then his/he will easily retire with a corpus of over Rs 1 crore or more even if the monthly contribution is just around Rs 5,000 for 35 years.
Assuming you have started working at the age of 25 years and will retire at the age of 60 while the average annual return from EPF contribution is 8%, a monthly contribution of Rs 5000 to the EPF account for 35 years will give you a retirement corpus of around Rs 1.15 crore. Having said this, there are two interesting points to note:
- First, the interest rate for EPF contributions is generally higher than 8%. Currently, the EPF interest rate is 8.5%. This means the actual retirement corpus will be even higher than Rs 1.15 crore.
- Second, the basic salary of a person generally increases with work experience or as s/he makes career progress. This means that the contribution to the EPF account also increases with time. There is every possibility that the retirement corpus will be much higher than Rs 1.15 crore even if you have started with Rs 5000/month.
Calculation shows that a monthly contribution of Rs 8,000/month for 30 years will give you around Rs 1.19 crore at 8% interest. The monthly contribution of Rs 10,000/month for 30 years will give you around Rs 1.5 crore at 8% interest. Similarly, a monthly contribution of Rs 15,000/month will give you around Rs 2.24 crore on retirement at 8% interest.
What should EPF account holders do?
To make the most of EPF contributions, EPF account holders should try not to close the account or make partial withdrawals from the fund before retirement. You should also keep a track of monthly contributions made by your company and take steps if the employer is not depositing in your account.
While it is great to have an EPF account, employees should also look at other investment opportunities to multiply their wealth during their earning years.