Retirement Benefits at ₹20,000 Salary After 35 Years: EPF and EPS Projections
EPF Calculator: Retirement marks a significant life transition, a time to pursue dreams free from the constraints of work. However, financial security is crucial, and the Employees' Provident Fund (EPF) plays a vital role in securing this. EPF and the Employees' Pension Scheme (EPS) are excellent tools for securing a comfortable retirement. This article calculates the pension and fund accumulation after 35 years for someone earning ₹20,000 per month, starting EPF and EPS contributions at age 25.
Understanding EPF and EPS
EPF (Employees' Provident Fund) is a scheme where both the employee and employer contribute monthly. These contributions, along with accrued interest, accumulate in your EPF account. The EPF interest rate for the 2024-25 fiscal year is 8.25%. The accumulated amount, interest, and retirement benefits are all tax-free. 12% of your monthly salary is contributed to EPF.
EPS (Employees' Pension Scheme) is a pension plan designed to provide a monthly pension after retirement. Contributions are made by the employer. Of the 12% deducted from your EPF, 8.33% goes to EPS, and the remaining 3.67% to EPF. However, EPS contributions are capped at ₹15,000; if your salary exceeds this, the 8.33% contribution will only be calculated on ₹15,000.
Contribution Calculation with a ₹20,000 Salary
Assuming a ₹20,000 monthly salary:
Employee Contribution:
20,000 × 12% = ₹2,400 per month to EPF.
Employer Contribution:
20,000 × 12% = ₹2,400, divided as follows:
EPS: 15,000 × 8.33% = ₹1,250 (due to the ₹15,000 EPS cap)
EPF: 2,400 – 1,250 = ₹1,150
Total EPF: 2,400 (employee) + 1,150 (employer) = ₹3,550 per month.
EPS: ₹1,250 per month.
EPF Accumulation After 35 Years
For a 25-year-old retiring at 60, there's a 35-year contribution period. With ₹3,550 deposited monthly into EPF, the annual contribution is:
3,550 × 12 = ₹42,600.
With an 8.25% annual interest rate over 35 years, the projected accumulation is approximately ₹68.9 lakh.
EPS Pension Calculation
With ₹1,250 monthly contributions to EPS, the pension is calculated as follows:
Pension = (Years of Service × Average Salary) / 70
Years of Service: 35 years
Average Salary: ₹15,000 (EPS cap)
Pension = (35 × ₹15,000) / 70 = ₹7,500 per month.
Total Retirement Benefits
Combining both:
EPF: ₹68.9 lakh (lump sum)
EPS: ₹7,500 monthly pension.
Assuming a 20-year post-retirement lifespan, the total pension amount would be:
7,500 × 12 × 20 = ₹18 lakh.
Therefore, the total benefit (fund and pension) would be approximately ₹86.9 lakh. However, inflation and changing lifestyle needs might necessitate additional investments.
Impact of Salary Increases
A 5% annual salary increase could boost the EPF fund to ₹1.2 crore after 35 years. A 10% increase could potentially yield over ₹2 crore. While the EPS cap remains at ₹15,000, salary increases would slightly enhance the pension amount.
Adequacy of Retirement Funds
While ₹68.9 lakh and a ₹7,500 monthly pension might seem sufficient now, inflation over 35 years could diminish their value. To achieve a retirement fund of ₹1 crore or more, consider supplementing EPF with investments in mutual funds, the National Pension System (NPS), and the stock market. Additional monthly investments of ₹2,000-₹3,000 could significantly enhance your retirement corpus.
Note: This is an estimated projection. Actual figures may vary depending on the EPF interest rate and salary increments.
