EPF Retirement Planning: How large fund can employees with basic salaries of Rs 16,000, Rs 21,000, and Rs 26,000 create in 30 years?
EPF Retirement Fund Calculations: Employees' Provident Fund (EPF) is a popular scheme for private sector employees to generate a retirement corpus. Both the employee and the employer contribute to the former's EPF corpus. The maturity amount is tax-free.
EPF Retirement Corpus Calculations: Retirement planning is important for anyone seeking a comfortable life and financial freedom during retirement years. For anyone who doesn't want to depend on others post retirement, it is necessary to start investing early and invest a substantial amount. A large corpus at retirement can help them draw a significant lump sum or monthly income. There are many government as well as private sector retirement-focussed schemes where investors can invest monthly or one-time to generate a retirement corpus. Employees' Provident Fund (EPF) is one of those schemes where the monthly amount is deposited from an employee's monthly salary to their EPF account. Know more about EPF and how much corpus employees with basic salaries of Rs 16,000, Rs 21,000, and Rs 26,000 can generate in 30 years.
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What is EPF?
EPS is an investment scheme run by the Employees' Provident Fund Organisation (EPFO) for private sector employees to create a retirement fund. A monthly amount is deposited to the EPF subscriber's EPF account.
Who contributes to EPF?
The employee and the employer both contribute to the former's EPF account. The employer matches the employee's amount for EPF contribution.
Who is eligible for EPF contribution?
Anyone with a basic salary and dearness allowance of Rs 15,000 is eligible for EPF contribution. The minimum EPF contribution is Rs 1,800.
What is the maximum EPF contribution?
The maximum EPF contribution is 12 per cent of the basic salary and DA. However, the employer's 12 per cent contribution goes to the employee's Employees' Pension Scheme (8.33 per cent) and EPF (3.67 per cent).
Is EPF's interest fixed throughout the service years?
The labour ministry reviews it every 3 months, and on its recommendation, the finance ministry takes a call. The current interest rate is 8.25 per cent and is subject to change.
How is the EPF corpus taxed?
The EPF is one of the few schemes that provides tax exemption at all 3 levels- investment (up to Rs 1.50 lakh a financial year under Section 80C of the Income Tax Act, 1961), the interest earned, and the retirement corpus generated.
Till when can one contribute to EPF account?
The maximum age till when one is allowed to contribute is 60 years.
When can one withdraw EPF corpus?
At the retirement age of 58 years, on completion of 10 years of service, and on being unemployed for 2 months are some main conditions when one can withdraw their EPF amount.
EPF calculations
For our EPF calculation, we will take the examples of 3 cases, where the monthly basic salaries and DAs are Rs 16,000, Rs 21,000, and Rs 26,000, respectively. We will assume a 5 per cent basic salary increase every year. The investment duration will be 30 years in each case. The contribution will be 12 per cent of the basic pay and DA. The interest rate will be 8.25 per cent.
EPF Retirement Corpus: At 16,000 monthly basic pay
The total investment in 30 years will be Rs 21,28,945, the estimated interest will be Rs 50,23,261, and the estimated retirement corpus will be Rs 71,52,206.
EPF Retirement Corpus: At 21,000 monthly basic pay
The total investment in 30 years will be Rs 27,94,315, the estimated interest will be Rs 65,93,271, and the estimated retirement corpus will be Rs 93,87,586.
EPF Retirement Corpus: At 26,000 monthly basic pay
The total investment in 30 years will be Rs 34,59,551, the estimated interest will be Rs 81,62,831, and the estimated retirement corpus will be Rs 1,16,22,382.