Retirement planning is a key pillar of financial independence. For salaried individuals in the private sector, investing in the Employees' Provident Fund (EPF) remains one of the most common avenues to build a retirement corpus. With its attractive interest rates, EPF serves as a stable vehicle to ensure financial security post-retirement.
Both the employee and employer contribute 12% of the employee's basic salary plus dearness allowance (DA) to the EPF account each month. The contributions earn a fixed interest rate, declared annually by the Employees' Provident Fund Organisation (EPFO). The interest rate has hovered around 8.1% to 8.5% in recent years. For FY 2024-25, the government has fixed the interest rate at 8.25%.
Due to its tax benefits, guaranteed returns and compounding effect, EPF is a powerful tool for long-term wealth creation.
To accumulate Rs 2 crore through EPF, you need to consider several factors such as your monthly contribution, the employer's contribution, the interest rate and the time horizon. Even a modest salary can build a significant corpus over 30–35 years.
Here is a calculation that illustrates how to build a corpus of Rs 2 crore with EPF:
Age At Which EPF Contributions Start: 25
Retirement Age: 60
Time Horizon: 35 years
Monthly Basic Salary + DA: Rs 40,000 per month
Employee And Employer's Contribution: 12% of basic pay
Total Contribution: Rs 35.07 lakh
Interest: Rs 1.69 crore
Maturity Amount: Rs 2.04 crore
Thus, starting early with a decent salary and a long horizon can make the Rs 2-crore dream attainable. You can use online EPF calculators to check how much retirement corpus you can build with your current salary and EPF contributions.
While Rs 2 crore sounds substantial, it is important to remember that inflation erodes purchasing power. For people who are starting to invest a bit late, higher salaries, Voluntary Provident Fund (VPF) contributions, or supplementary investments are essential to reach a corpus of Rs 2 crore.
Also note that EPF contributions are capped at Rs 15,000 per month, while there is no limit on the contributions under the VPF scheme.
If you switch jobs frequently, ensure your EPF account is transferred to maintain tax benefits and compounding. Upon retirement, you can withdraw the entire EPF corpus or opt for a monthly pension.
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