Retirement Planning: NPS, EPF, PPF

Retirement is the only financial goal you cannot get a loan for. You can get a loan for a house, car, or education. But no bank will give you a loan to live when you are 70. You have to build it yourself.

The 3 Pillars of Indian Retirement

1. EPF (Employee Provident Fund)

For Salaried Employees.

• How it works: 12% of your Basic Salary is deducted, and Employer matches 12%.
• Interest: ~8.15% (Government decided).
• Tax: EEE (Exempt-Exempt-Exempt) up to limits. Interest tax-free up to ₹2.5L contribution.
• Lock-in: Till retirement (58). Partial withdrawal allowed for marriage/house.
• Verdict: The Foundation. Don't opt out. It's forced savings with great returns.

2. PPF (Public Provident Fund)

For Everyone (Salaried, Business, Kids).

• How it works: You open account in Bank/Post Office. Deposit min ₹500, max ₹1.5L per year.
• Interest: ~7.1% (Changes quarterly).
• Tax: EEE Status. Investment is tax-free (80C), Interest is tax-free, Maturity is tax-free.
• Lock-in: 15 Years. (Can extend in blocks of 5 years).
• Verdict: The Safety Net. Risk-free, tax-free debt component.

3. NPS (National Pension System)

For Everyone (The Wealth Builder).

• How it works: Market-linked pension scheme. You choose where money goes (Equity/Corp Bonds/Govt Bonds).
• Returns: Market linked (Equity can give 10-12%).
• Tax:
  • Investment: ₹1.5L (80C) + Extra ₹50,000 (80CCD(1B)).
  • Maturity: 60% is Tax-Free. 40% MUST be used to buy Annuity (Pension plan).
• Lock-in: Till age 60.
• Verdict: The Growth Engine. Best for beating inflation over 20-30 years.

Comparison Table

The Magic Number: How Much Do You Need?

The 30x Rule: You need roughly 30 times your annual expenses to retire.

Example:

• Current Monthly Expense: ₹50,000.
• Annual Expense: ₹6 Lakhs.
• Corpus Needed: ₹6 Lakhs × 30 = ₹1.8 Crores.
• Wait! Add Inflation. In 20 years, that ₹1.8 Cr will need to be ₹5-6 Crores.

Strategy: The Retirement Thali

Don't rely on just one dish. Mix them up.

1. EPF: Default debt component (Safety).
2. PPF: Fill this if you need more safety or tax saving.
3. NPS: Use for tax saving (₹50k extra) and equity exposure.
4. Mutual Funds (SIP): The Main Course. Since NPS has lock-in and annuity restrictions, build the bulk of your corpus in Flexi Cap / Index Funds. They offer liquidity and higher returns.

What is an Annuity? (The NPS Catch)

In NPS, at age 60:

• You withdraw 60% cash (Tax-free).
• You MUST invest 40% in an Annuity.
• Annuity = You give money to insurance company, they give you monthly pension for life.
• Problem: Annuity returns are low (5-6%) and pension is Taxable.
• This is why NPS is good, but not perfect.

7-Day Action Plan

Day 1: Check your EPF balance (Passbook). Are you checking it annually?
Day 2: Open a PPF account if you don't have one (even with ₹500). It starts the 15-year clock.
Day 3: Open an NPS account (Tier 1) if you want to save extra tax.
Day 4: Calculate your "Retirement Number" using an online calculator.
Day 5: Check your asset allocation. Are you 100% in Debt (EPF/PPF)? You need Equity (Mutual Funds) to beat inflation.
Day 6: Nominate! Ensure your spouse/parents are nominees in EPF, PPF, and NPS.
Day 7: Increase your retirement SIP by 10%. Your future self will thank you.

Quiz

💡 Final Wisdom: "Retirement is when you stop working for money and money starts working for you." The earlier you start, the cheaper it is.