For most of us, our mid-40s seem to be a very hectic life-stage. We frequently imagine our retirement being made up of long holidays with no emails to check and phones to answer, and we hope to start a peaceful retired life someday soon. Unfortunately, these day-dreams end as soon as they start, rudely interrupted by kids, work or something else “urgent”.
Wanting to retire in peace with no liabilities and financial stress is something that everyone aspires for, and rightfully so. After a life-time of hard work, this is something we are entitled to, aren’t we? That said, this peace of mind is not something that comes automatically, and needs to be worked towards, with discipline.
One investment which is the biggest contributor to a salaried person’s peaceful retirement is his or her EPF (Employees Provident Fund). It is therefore extremely important to give it a little attention and time.
When we make a financial plan, a few clients who don’t attach much importance to retirals are pleasantly surprised when they see the amount accumulated. If EPF is left untouched and promptly transferred every time one shifts jobs, it can truly bring a lot of relief when most needed.
Sadly, we see many clients in their mid-forties who have a low accrual in EPF. Ironically, the reason is they are knowledgeable and relatively personal finance savvy! They recognise that there is much to savings beyond Sec 80C and with the kind of time-frame available for retirement, they would be better off investing the amount elsewhere and making far higher returns than that on offer with EPF.
While all of this is true, what most of them fail to recognise is once you withdraw the amount it is needs to be earmarked for retirement with discipline. When you have investments, which are visible and are tracked on a regular basis, you will be surprised at the numerous expenses which suddenly crop up and seem “urgent and unavoidable”. The result is – the EPF amount that is withdrawn and carefully invested while changing jobs, is dipped into to meet this “now important” short-term expense, leaving a big void in your retirement pot.
This might sound unreal, but I am yet to meet a client who has withdrawn the EPF and re-invested it with retirement in mind, but has let it remain there till retirement. Do give this aspect a serious thought before you choose to withdraw it for “better investment opportunities”.
We also come across people who have shifted multiple jobs but have not shifted their EPF from previous employer to the current one. The thought process is, it is earning interest, and it is safe, there is no hurry to transfer, lets do it when time permits. Unfortunately, it becomes another item on the to-do-later list and ends up remaining there.
The process of transferring EPF is now online and simple and consumes very little time. In the minds of most people though, this is a complicated procedure requiring multiple visits, paper work and constant follow up. Once you realise this, it may motivate you to action this immediately.
The more pressing reason for you to do so is that if you stop making fresh contributions to your EPF the interest paid on the amount accumulated is taxable. This is a big downer and should be incentive enough to transfer it on time.
Remember you could be working for the same employer but may have had multiple internal transfers within group companies, these need to be treated as job changes and you need to ensure that the EPF has been transferred. I have seen people quit after 15 years with one group and then realise that EPF accumulation does not go back to their date of joining the group, due to multiple intra-group transfers. Getting these transfers done when you are not part of the system and do not have access to the right people can be frustrating and time consuming.
It is very easy to download an EPF passbook online, I have given the link here on how to – https://www.cleartax.in/s/pf-balance-check. I strongly suggest that you do this at least once a year and ensure that all transfers are done. You will reap rich dividends for the time and effort put in tracking and ensuring your retirals are not idling away. If any of you have had interesting experiences with EPF do share them for the benefit of everyone in the comments below.
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