Is EPF alone enough to build a comfortable retirement in India?
EPF provides a strong retirement foundation, but depending on it alone may not always be enough.
The Employees’ Provident Fund is the first savings scheme available to many salaried employees in India and is also one of the most consistent. Every month, individuals are made to save through automatic deductions into their savings account. Hence, it becomes very easy for salaried employees to build large balances in their EPF accounts if they have been employed for a long time.
However, since people always assume their EPF money will be sufficient to retire comfortably in the future, there is a problem: EPF cannot be relied upon alone to provide a comfortable retirement for any individual.
How EPF helps in retirement planning
EPF is one of the best long-term savings plans. Every month, an individual and their employer contribute to this savings plan. This money accumulates over time and earns a certain interest rate, helping build a solid retirement savings corpus.
One of the best things about the EPF is that it ensures discipline. When one’s contribution is automatically deducted from his/her salary account, he/she does not even think twice about saving. Another important advantage of this plan is that it offers stability to people who do not like investing in market-linked investment instruments.
Why retirement expense exceeds savings from EPF?
Retirement requires a lot more money than we think. Expenses like inflation, health care, rent, and travel keep increasing after an individual retires from work. EPF can generate a decent amount of money, but it may not cover all these expenses, which keep increasing gradually over a span of 20 to 30 years.
In addition, one needs to keep inflation in mind.
Effect of inflation on retirement corpus?
Inflation can affect the value of money in the following way: it makes your retirement savings less valuable over time. As per studies, the average inflation rate in India ranges between 5 and 7 percent. Daily necessities, medical expenses, rent, etc., tend to increase gradually over time.
Therefore, while having an EPF account is a good choice, you should also invest in growth-oriented products.
Essence of diversification in retirement savings
Retirement planning requires using multiple savings vehicles. If you depend upon just one savings vehicle to plan your retirement, you would face problems because of several reasons: Future demands can change unexpectedly. If you fail to plan, there is a chance of a money shortage in the future.
Hence, to create a comfortable retirement, it is essential to diversify your savings in several ways.
How to build balanced retirement savings portfolio?
EPF can serve as the starting point for your retirement planning. However, along with the EPF, you must also consider other retirement savings plans, such as mutual funds, pensions, and more.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.