Retirement planning may feel like a far-away concern when you’re just 25 years old, but the earlier you start, the bigger your wealth can grow. One of the simplest and safest ways salaried employees build retirement savings in India is through the Employees’ Provident Fund (EPF).
If your basic salary is Rs.20,000 per month at the age of 25, and you get a 10% annual salary increment, your EPF fund can grow into a significant retirement corpus by the time you turn 60. This growth happens due to the power of compounding, regular contributions from both employer and employee, and annual interest earnings on the fund.
Let’s understand in detail how much you can accumulate in EPF by your retirement using a real-life example and also how this fund grows over time.
What is EPF and How Does It Work?
EPF, or Employees’ Provident Fund, is a savings scheme governed by the Employees’ Provident Fund Organisation (EPFO) under the Ministry of Labour and Employment, Government of India.
Every month, both employee and employer contribute 12% of the basic salary towards the EPF account. The employee’s entire 12% goes to EPF, but from the employer’s share, only 3.67% goes to EPF, while 8.33% goes to the EPS (Employees’ Pension Scheme).
The EPF account also earns interest, which is declared by the government every year. As of now, the interest rate is 8.25% per annum (as per FY 2023-24). This interest is compounded yearly, making a huge difference in the long run.
Starting Point: Rs.20,000 Basic Salary at Age 25
Let’s say you’re 25 years old and your basic monthly salary is Rs.20,000. Based on the EPF rule:
- Your contribution (12%) = Rs.2,400/month
- Employer’s EPF share (3.67%) = Rs.734/month
- Total monthly EPF deposit = Rs.3,134
- Total yearly deposit = Rs.3,134 × 12 = Rs.37,608 (excluding interest)
Now, if your salary increases 10% every year, both your and your employer’s contributions will also go up proportionally. So the EPF deposit will not remain the same but will keep growing every year.
Annual Increment: 10% Year-on-Year
A 10% annual hike means your basic salary increases 10% every year. In the second year, your basic salary will be:
- Rs.20,000 + 10% = Rs.22,000
- In the third year: Rs.22,000 + 10% = Rs.24,200
- And so on…
This increasing salary means your monthly EPF contribution also increases year by year. Since contributions and interest both grow over time, the compounding impact becomes very powerful.
Interest Compounding in EPF
The EPF interest is calculated on the monthly closing balance and compounded annually. For example, if you deposit Rs.3,134 every month, your yearly contribution will be Rs.37,608. Interest is added to the balance at the end of the financial year.
The more you contribute and the longer you stay invested, the more your money grows. Over 35 years (from age 25 to 60), this interest component becomes a huge part of your final corpus.
EPF Fund Growth Calculation Over 35 Years
Let’s calculate your total EPF balance at age 60, assuming the following:
- Starting Age: 25
- Retirement Age: 60
- Starting Basic Salary: Rs.20,000/month
- Annual Increment: 10%
- EPF Interest Rate: 8.25% (assumed constant for simplicity)
- Employee EPF Contribution: 12%
- Employer EPF Contribution: 3.67%
To keep it simple, we’re only considering EPF (excluding EPS for now), and we’re using approximate figures with standard assumptions. Let’s simulate this year by year:
Year 1: Age 25
- Basic Salary: Rs.20,000
- Monthly EPF: Rs.2,400 (employee) + Rs.734 (employer) = Rs.3,134
- Annual EPF: Rs.37,608
- Interest (approx.): Rs.1,548
- Total balance: Rs.39,156
Year 2: Age 26 (10% hike)
- New Basic Salary: Rs.22,000
- Monthly EPF: Rs.2,640 + Rs.808 = Rs.3,448
- Annual EPF: Rs.41,376
- Interest (on old + new): Rs.4,258
- Total balance: Rs.84,790
Fast-forwarding…
By the 10th year (age 34):
- Basic salary will be Rs.51,874
- Monthly EPF contribution = Rs.6,225 approx.
- Annual EPF deposit: Rs.74,700+
- Approx. balance with interest: Rs.7.3 lakh+
By the 20th year (age 44):
- Basic salary = Rs.1.34 lakh/month
- Monthly EPF = Rs.16,000+
- Annual deposit = Rs.1.92 lakh+
- EPF fund value = Rs.33 lakh+ (approx.)
By the 35th year (age 60):
- Basic salary = Rs.7.43 lakh/month (yes, because of 10% hike compounded for 35 years)
- Monthly EPF = Rs.88,000+
- Annual EPF deposit = Rs.10.5 lakh+
- Final EPF corpus: Rs.2.6 crore to Rs.2.8 crore (approx.)
EPF Interest Alone Can Beat Inflation
As you can see, the last few years contribute the most to your final corpus due to the massive monthly deposits and compounding interest. The interest alone in the final year can cross Rs.20–25 lakh, which is a result of staying invested for 35 years continuously.
This kind of long-term, steady investment easily beats inflation and provides a guaranteed retirement cushion without the market risks of equity investments.
What If You Withdraw Midway?
Let’s say you decide to withdraw your EPF at age 40 or 45. While it’s allowed under some conditions, you lose the compounding benefits that happen in the final 10–15 years.
For example:
- At age 40, your EPF corpus may be around Rs.20–22 lakh
- But if you stay invested till 60, the fund grows 10x more
That’s the power of staying consistent and not withdrawing early unless absolutely needed.
Tax Benefits on EPF
The EPF also gives you tax savings under the old tax regime:
- Employee’s contribution up to Rs.1.5 lakh per year is tax-deductible under Section 80C
- The interest earned and maturity amount are tax-free, if withdrawn after 5 years of continuous service
This makes EPF one of the most tax-efficient investment tools available for salaried employees.
Should You Voluntarily Contribute More?
Yes! If you can afford it, you can contribute more than the mandatory 12% — this is called Voluntary Provident Fund (VPF). The interest remains the same (8.25%), and it gives you an even larger retirement cushion.
Example: If you save an extra Rs.3,000–Rs.5,000 per month through VPF, your total EPF balance can cross Rs.3 crore or more by retirement.
EPF is a Safe Retirement Tool with Predictable Returns
While mutual funds, stocks, and real estate are good for long-term growth, EPF gives you safety, steady interest, and tax-free maturity, which is unmatched.
A person starting early with just Rs.20,000 basic salary and a 10% yearly increment can retire with a corpus of over Rs.2.5 crore, all by doing nothing except regular contributions and staying invested.
