Retiring with a tidy sum is something everybody wants and the Employees’ Provident Fund Organisation (EPFO) will help you do that. While many strive to save and invest after meeting their regular expenditure, something that is an integral part of your employment is also working tirelessly towards fulfilling your goal. We are talking about your EPF account. Here, we show you how you can be a crorepati on the strength of your account courtesy the high EPF interest rate and the magic of compounding. So, check out how you can retire with Rs 1 cr with EPF contribution of Rs 10000, Rs 11000 and more! Just check the maths.
Having Rs 1 crore in your Employees’ Provident Fund (EPF) account at the time of retirement is actually easy if you just keep working uninterrupted during the normal years, say between 25 and 58. If that startles you, consider this. You don’t have to earn a huge amount of basic salary to build this corpus.
Simple arithmetic
If your basic is just Rs 10,000 and the interest rate is only 8%, you could accumulate more than Rs 1.36 crore in your provident fund account.
Raise the interest rate to 8.25% as determined by the Central Board of Trustees of the EPFO and the amount climbs to Rs 1.40 crore.
If your basic salary is just 10% higher at Rs 11,000 you could surpass Rs 1 crore and reach Rs 1.05 crore with 8% annual increment in salary and 8% rate of interest.
The rate of interest also cannot remain constant for more than three decades. It is determined by the Central Board of Trustees every year and almost invariably changes every year.
Historically high EPFO interest rates
The rates of EPF interest over the past several years have been the following: 8.25% (FY24), 8.15% (FY23), 8.55% (FY22 and FY21), 8.65 (FY20 and FY19), 8.55% (FY18), 8.65% (FY17).
Therefore, the 8% rate of interest assumed for calculation is rather conservative. The implication is, other factors remaining constant, the funds accumulating at retirement would be higher than the one projected above.
It should be noted that the favourite investment instrument of millions in this country is PPF, or Public Provident Fund which offers only 7.1% interest now.
There is another limiting factor that has been considered in the above calculation. The retirement age has been assumed as 58 years. If you are fortunate to work in a firm that has set 60 years for retirement, the corpus will rise by a substantial amount. In other words, one could reach Rs 1 crore with less increment or lower basic salary.
The rates of salary increments are also seldom uniform down the years.
Right of employees
If you work in a company that employs 20 workers or more, you are entitled to a provident fund. An amount equal to 12% of the basic + DA of any employee is deducted from the salary and deposited in the EPF scheme. The employer also has to make a matching contribution with 3.67% going to the same EPF account and the remaining 8.33% going to a separate kitty from which the employee will get a pension every month.
This pension account is also maintained and administered by the EPFO.
Even a small EPF contribution can get you a big amount. An amount of Rs 1 crore in the EPF account is something coveted by numerous employees in India. You don’t need any effort, other than doing your office diligently, to silently build that corpus. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
