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Will Your Provident Fund Be Enough for Retirement

  10/26/17 10:19 AM

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An early retirement is the dream of every working professional. However, only a handful are able to achieve it. What others lack is the will and a plan to save for retirement. Only after a person is financially stable and makes constant efforts towards saving for his retirement, he/she can enjoy comfortable years of retirement without relying on anyone.

Investment in Provident Fund is one of the most popular ways of saving for retirement. However, time and again, investors have discovered that it is not enough. You need to invest in an alternative retirement plan to really enjoy the fruits of a blissful retirement.

Why is Provident Fund Investment Not Enough?

PPF (Public Provident Fund) and EPF (Employee Provident Fund) cannot meet the modern-day retirement demands due to several reasons. Some of these reasons include:

  • Most of the people focus on building a provident fund investment as a way to avoid paying income tax. These people save the minimum amount of funds as part of their provident fund so that they can move to a lower tax slab thereby needing to pay only a smaller amount of income tax.
  • The maximum amount that one can deposit in a PPF is 1.5 Lakh Rupees per annum. Compounding the investment for a period of 7-8 years, the amount that you get for retirement is not sufficient to cover the y-o-y rate of inflation.
  • NRIs as well as HUFs are not allowed to invest in the PPF schemes. So, it becomes imperative for them to look for alternative retirement investment options.
  • The rate of interest offered on the PPF funds is 8.5%. This rate of interest is not sufficient considering the current rate of inflation. Considering a positive scenario where the rate of inflation is limited to 6%, the applicable ROI available for the retired individuals to pursue their dreams, is only 2.5%.
  • Since provident fund is a long-term investment plan, it does not offer the much required liquidity. Therefore, one must look at alternative retirement plans that allow the necessary liquidity for the individual while safeguarding his/her assets in the long run.
  • PPF also does not provide room for a joint account. This levies a heavier tax due to stringent maximum investment conditions and does not provide the flexibility for a co-signor to invest on your behalf for the retirement plan.

What Are the Alternative Options?

So, if provident fund cannot tackle the rate of inflation, what are the other options that you have for a long-term investment for a retirement plan? – Specially Curated Retirement Plans and Pensions Schemes.

The benefits of these special pension plans negate all the flaws in the PF plans while providing enough flexibility for the investor. Here are the reasons:

  • Tackle Emergencies: The returns from a pension plan can easily help you tackle emergencies. You will most likely require extra funds at an arm’s length to tackle medical emergencies in your old age. Retirement plans offer that very conveniently.
  • Leisure Activities: The flexibility of the pension plans allows you to spend on leisure activities without any barriers.
  • Financial Independence: The higher rate of interest offered by pension plans can tackle the high rate of inflation while providing room for leisure activities thus making you truly financially independent.

Therefore, an additional retirement/pension plan is regarded as a good idea along with a PPF and EPF to achieve true financial stability in your future.

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