The EPF balance is the one figure that most paid Indians look at and feel somewhat comforted about. As of 2024, the national EPF corpus has increased to over Rs 24.76 lakh crore, almost five times the amount it was ten years before.
That sounds enormous. However, the national corpus does not provide retirement benefits. The gap appears subtly since it is paid from your own account.
A 12 percent monthly PF deduction may seem reasonable on your pay stub, but retirement is battling three powerful factors at once: longer lifespans, growing medical expenses, and increasing prices. Hospital expenses, diagnostics, and long-term care sometimes rise at a significantly greater pace than headline inflation, which may be close to 3ā4%. When you are in your seventies, an operation that costs Rs 3 lakh now can easily cost Rs 7ā8 lakh. By 70, a corpus that seems cozy at 60 may feel constricted.
EPF has its own limitations as well. Contributions are associated with formal employment and base wage. The continuous build-up may stop if you change employment regularly, take professional pauses, or become a consultant. Additionally, a lot of individuals utilize EPF as a general emergency fund. Rules currently permit withdrawals of up to 75% of the total prior to retirement, leaving just 25% as a required safety net. The retirement basis decreases each time funds are taken out for things like house improvement, kids’ schooling, or health care.
Planners are increasingly discussing adding a second and third leg to the retirement stool because of this. PPF and NPS are the most straightforward add-ons for the majority of middle-class families. PPF offers you a long-term, government-backed, tax-free return. It works nicely for the really cautious portion of your investments and is stable but sluggish. In fact, NPS helps a long-term corpus outperform inflation by allowing you to add some equity in a regulated manner.
EPF is the default, to put it simply. It is not the whole strategy. If a 35-year-old is serious about retiring, they should at the very least consider PF plus one more product, then boost their payments if their salary increases. This is less unpleasant the earlier it begins. You are attempting to complete a marathon in the last 10 kilometers if you wait until 45 or 50.
When combined, EPF, PPF, NPS, and some optional mutual fund SIPs may make retirement planning more than just a guess. Instead than pursuing the ideal product, the habit that really alters results is to discreetly increase your long-term investments each time life improves.
Frequently asked questions
Can EPF be sufficient on its own if inflation is currently low?
A: It is not probable. Medical and lifestyle expenses continue to increase more quickly during a 20ā30 year retirement period, even when general inflation may seem modest in a particular year. Unless you make extremely substantial contributions and never withdraw, EPF often cannot keep up on its own.
Is it preferable to supplement EPF with PPF or NPS?
A: They do distinct tasks. PPF fits the conservative portion of your finances since it is safer and tax-free. NPS may develop more quickly over time by taking on some equity exposure. Depending on their age and level of risk tolerance, the majority of investors are better suited employing a combination.
Q: I sometimes work as a freelancer and switch jobs often. Is EPF still beneficial to me?
A: Sure, but only if you transfer funds, maintain a clean KYC, and refrain from cashing out every time you switch. Opening a PPF account or investing in NPS might provide you with continuity even if your EPF payments temporarily cease if your work schedule is erratic.
