75% EPF withdrawal: How much it’ll cost to rebuild it
For many salaried employees, the Employees' Provident Fund (EPF) is one of the largest financial assets they accumulate during their working years. When changing jobs
For many salaried employees, the Employees' Provident Fund (EPF) is one of the largest financial assets they accumulate during their working years. When changing jobs, facing unemployment, opting for voluntary retirement or moving abroad, the temptation to withdraw the entire corpus can be strong. After all, the money belongs to you. The new EPF withdrawal rules have made it easier for salaried employees to access their provident fund savings during unemployment. But does that mean you should withdraw your retirement savings at the first opportunity? But financial experts say that just because you can withdraw your EPF doesn't always mean you should. What do the new EPF withdrawal rules say? The new EPF withdrawal rules allow employees greater flexibility in accessing their retirement savings during periods of unemployment. Employees can withdraw up to 75% of their EPF balance after one month of unemployment, while the remaining balance can be withdrawn after 12 consecutive months of unemployment. The EPFO determines unemployment based on the absence of monthly EPF contributions in the member's account, according to Sriram V, CHRO at BankBazaar. But just because the new rules allow you to withdraw up to 75% of your EPF balance after one month of unemployment doesn't necessarily mean it's the best financial decision. The biggest cost of withdrawing EPF isn't the money you take out, it's the decades of ta free compounding you lose. Consider the illustration below Withdrawal Age EPF Corpus Before Withdrawal 75% Withdrawn Corpus at Age 60 After Withdrawal Shortfall vs. No Withdrawal Extra VPF/month @ 8.25% Extra SIP/month @ 12% 30 ₹1.74 lacs ₹1.30 lacs ₹41.98 lacs ₹15.36 lacs ₹ 979 ₹ 440 40 ₹8.32 lacs ₹6.24 lacs ₹25.05 lacs ₹32.29 lacs ₹ 5,314 ₹ 3,264 50 ₹23.28 lacs ₹17.46 lacs ₹17.61 lacs ₹39.74 lacs ₹ 21,419 ₹ 17,274 No Withdrawal — — ₹57.34 lacs Source: Arihant Capital Markets The following illustration assumes an employee starts working at age 25, contributes only the minimum mandatory EPF amount based on the ₹15,000 wage ceiling, retires at age 60, and continues making the same EPF contributions throughout.
The employer's EPS contribution has been excluded from the EPF corpus. The EPF interest rate is assumed at 8.25%. The numbers show how expensive an early withdrawal can become over time. An employee withdrawing 75% of the EPF balance at age 30 would take out only about ₹1.30 lakh, but the retirement corpus at age 60 falls by approximately ₹15.36 lakh because that money loses 30 years of compounding. Waiting until age 40 allows the EPF corpus to grow, but withdrawing ₹6.24 lakh at that stage still results in a retirement shortfall of around ₹32.29 lakh. At age 50, the employee can withdraw a much larger amount of ₹17.46 lakh, but even with only 10 years left until retirement, the final corpus is nearly ₹39.74 lakh lower than if no withdrawal had been made. Effort needed to regain the lost ground? The illustration also shows how difficult it is to rebuild the lost corpus. To make up for a withdrawal at age 30, the employee would need to contribute an additional ₹979 a month through VPF (or invest about ₹440 a month in an SIP assuming 12% annual returns). If the withdrawal is delayed until age 50, the monthly contribution required jumps sharply to ₹21,419 through VPF or ₹17,274 through an SIP. The takeaway is that the earlier you rebuild your retirement savings after an EPF withdrawal, the easier it is. Delaying the rebuilding process means you have fewer years for compounding to work, forcing you to save substantially more every month. Should you withdraw EPF when changing jobs? For most employees switching jobs with more than 1 month of break, experts say transferring the EPF balance to the EPF account under new employer is usually a better option than withdrawing it.
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