The Employees’ Provident Fund (EPF) is a simple yet effective way to build a secure financial future. Managed by the Employees’ Provident Fund Organization (EPFO), it deducts a fixed amount from your salary every month and adds interest on the deposited amount. If you maintain regular contributions without unnecessary withdrawals, your savings can grow into a huge corpus by retirement. With just a Rs 25,000 monthly basic salary and dearness allowance (DA), you can accumulate over Rs 2 crore by the time you retire.
Stress-Free Retirement Planning with EPF
For a comfortable retirement, financial experts suggest having at least Rs 1.5 crore to Rs 2 crore in savings. By making consistent contributions throughout your working years, EPF can help you achieve this target without the need for additional investment plans. Both the employee and the employer contribute to the EPF account, and the government decides the annual interest rate, which currently stands at 8.25%.
Contribution Breakdown for EPF
Employees must contribute 12% of their basic salary plus DA every month. Employers also match this contribution, though a portion goes toward the Employee Pension Scheme (EPS). Here’s how the contributions are divided:
- Employee’s contribution to EPF: 12% of basic salary + DA
- Employer’s contribution to EPF: 3.67% of basic salary + DA
- Employer’s contribution to EPS: 8.33% of basic salary + DA
Example: EPF Savings with a Rs 25,000 Salary
Let’s assume you are 25 years old with a basic salary and DA of Rs 25,000. Below is how your contributions and interest will accumulate until retirement at 60.
- Monthly Employee Contribution: 12% of Rs 25,000 = Rs 3,000
- Employer’s EPF Contribution: 3.67% of Rs 25,000 = Rs 917.50
- Total Monthly EPF Deposit: Rs 3,000 + Rs 917.50 = Rs 3,917.50
Growth of EPF Savings over 35 Years
Assuming an annual salary increment of 6% and an 8.25% interest rate on EPF, here’s how your savings will grow:
- Total Contribution: Rs 55,99,680
- Interest Earned: Rs 1,52,23,250
- Total Fund at Retirement: Rs 2,08,22,930
How Interest on EPF is Calculated
The interest on EPF is credited annually but calculated monthly at a rate of 0.6875% (8.25% per annum). While your monthly contributions keep building, the accumulated interest is added to the account at the end of the financial year, further boosting your savings.
With this disciplined savings plan, you can retire stress-free with a healthy corpus of Rs 2 crore or more, ensuring financial security for your future.
