Why you should complement your EPF and PPF with Retirement Investment Plans

Retirement can be the golden era of one’s life, rightfully known as the happy ‘second innings’. It is the time when for once you can finally slow down and smell the flowers, i.e., you can explore new hobbies, travel, unwind and do all the things in your bucket list that you never got a chance to do in your career-driven life. This is usually the time when your children are grown up and are taking care of themselves, and you have a lot of free time on your hands to discover new possibilities. However, despite all this, the post-retirement phase can be daunting for many individuals. Instead of feeling free from the responsibilities of their professional lives, people can feel very worried and stressed about their finances. The absence of a regular monthly paycheck, that they had been habituated to, can create unnecessary turmoil and insecurity.

To avoid this scenario, one needs to start planning for and strategizing their retirement from the initial, youthful days of their professional lives. You can plan for your retirement in many ways. Want to know how to retire early? All you need to do is research about multiple investment options and choose the one that is best suited for you. However, most individuals only think about and invest in the stable-but-low-returns-yielding Public Provident Fund (PPF) when they think about managing their finances after their retirement.

The public provident fund (PPF) and the employee’s provident fund (EPF) are the most commonly chosen and useful instruments to build an adequate and sufficient retirement corpus for yourself. However, you need to know that only investing in the PPF or the EPF is insufficient for your retirement plans – not just for yourself but also for your dependent family.

What is the PPF?

A PPF or the Public Provident Fund is an investment-cum-savings plan offered by the Government of India. You can invest a certain amount of money (up to INR 1,50,000) every year and receive compounded returns annually. It is an EEE investment plan, which means that the amount you deposit in your PPF account, the returns you generate, as well as the amount you receive on maturity are exempt from taxation.

What is the EPF?

EPF stands for the Employee Provident Fund, wherein salaried employees contribute a small percentage (12%) of their basic pay every month into the fund. A similar amount is contributed the employer into this fund. Each employee gets a distinct UAN (Universal Account Number) to track their current savings and value of investment. This amount is used to fund the retirement of the employees.

So why is the Provident Fund insufficient?

According to statistics, it has been revealed that the savings rate are high but despite that only about 10% of the country’s working class has any social security such as the EPF. Other professionals such as doctors, accountants, lawyers or self-employed persons do not really invest in social security platforms. If at all they do, they do it for tax saving and not retirement planning.

Another reason why provident funds are insufficient is that they do not provide adequate returns when you keep in mind the inflation rates. The long-term inflation rates can devalue or minimize your returns, ultimately being not sufficient for your retirement plan.

Therefore, the alternative to this are the retirement investment plans that give you financial security and enough coverage to sustain your standard of living. Pension plans give you an option of accumulating and investing savings, generating a lump sum amount when you retire, which is then further directed to create a regular income stream through an annuity plan. They also give you the choice to invest in equities, and give you greater inflation-adjusted returns.

A mother of 2 lovely kids. Digital Marketer by profession and a blogger by passion! Here to inspire and motivate people with my writing.