How To Calculate The Amount In Your EPF Account At Retirement?

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How To Calculate The Amount In Your EPF Account At Retirement?

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The finest aspect of retirement is having virtually unlimited time and freedom to do whatever you want.  Rejoice in your dreams, and check everything off your bucket list! However, how does one ensure an income when they are no longer actively working to enable a leisurely lifestyle? Most people have an Employee's Provident Fund (EPF) account and are presumably counting on it to tide them through retirement, but will it be enough? Have you ever wondered how to calculate the amount in your EPF account at retirement to guarantee that it is sufficient for your desired lifestyle?

An EPF calculator would be quite a handy tool to plan for retirement. It can also answer the question of how to calculate the amount in your EPF account at retirement without you needing to actually do any calculations. 

But before we begin with how to calculate the amount in your EPF account at retirement, It is essential to understand some other characteristics of this scheme.

What is EPF?

The Employee Provident Fund (EPF) came into existence as a retirement scheme that would offer a continuous source of income to private-sector employees during retirement or unemployment. The provident fund is a mutual commitment made by you and your employer, where a portion of your pay is diverted into an account to accumulate a corpus for retirement. The EPF is especially appealing since it is a government-backed risk-free investing instrument.

What is the EPF contribution by the employer and the employee?

The employee contributes 12% of base salary and dearness allowance towards the provident fund. The employer must also contribute an equivalent amount. 

The contribution is computed on the basic pay for the majority of private sector employees. For example, if the monthly basic income is ₹15000, the employee contribution to EPF is ₹1800 (12% of basic pay), while the employer contributes the same amount each month.

However, not all of the employer's contribution gets deposited into the EPF. The Employees' Pension Scheme (EPS) will get 8.33% of the employer contribution but on a ₹15,000 basis. So, for each employee earning ₹ 15,000 or above, the monthly EPS deduction is ₹1,250. If the basic salary is less than ₹15000, 8.33% of the total amount is deducted as EPS contribution. The remainder will be deposited into the EPF. 

The balance of 3.67% goes to the employee's EPF account. As a result, for a worker earning ₹15,000, the total monthly contribution to an EPF account would be the employee contribution plus the employer contribution, which in this case would be ₹1800. When the employee retires, they will get their whole share as well as the balance of the Employer's portion held in the EPF account.

Employees earning less than ₹15,000 per month are mandatorily required to make EPF contributions. You cannot withdraw from the EPF scheme after you have joined it. Employees may contribute up to 100% of their base pay voluntarily as well. However, this donation does not necessarily have to be matched by the employer.

What is an EPF calculator?

Now that we have cleared up what the EPF is and how the contributions work, let’s get to the main question - how is the amount your EPF fund calculated?  The answer lies in understanding the EPF calculator formula.

Every year, the government declares the interest rate that the EPF will provide for that particular financial year. The interest rate is calculated monthly but is credited to the account at the end of the fiscal year. The EPF interest rate for the year 2022-23 is 8.1%. The example below shows how to compute interest on an employee's EPF.

EPF Computation

You earn a monthly basic salary and dearness allowance of ₹50,000.

The rate of interest for the financial year 2022-23 is 8.1%.

Employee’s contribution to EPF - 12% of 50,000, which is equal to ₹6,000.

Your employer’s contribution to EPF - 3.67% of 50,000, which is equal to ₹1,835.

Your employer’s contribution to EPS - 8.33% of 50,000, which is equal to ₹4,165.

Your employer’s contribution towards EPS under the wage limit of ₹15,000 would be 15000*8.33/100, which is equal to ₹1,249.

Therefore, the contribution being made by your employer is more than the limit by ( 4165-1249) INR 2,196.

Therefore, the excess contribution made to the EPF ( 1835+2196) is ₹4,031.

The total contribution made to the EPF is, therefore, ₹10,031.

Now comes the most important step in the EPF calculator, the interest rate:

The interest rate is calculated on an annual basis on the total contribution made to the EPF by the employee and the employer. 

Hence, the formula is the (interest rate/12)*total contribution made. By plugging in your contribution details, we get:

8.1%/12*10,031 =  ₹67.71, rounded off to ₹68.

This interest amount is calculated monthly and credited to the EPF account at the end of the year. The amount available at the end of the year will serve as the starting balance for the next year.

Summing it up

Use the Fi Money EPF Calculator to check how much corpus you can build by the time you reach the age of retirement. Use it to assess if the corpus generated will cover your financial needs in retirement. You can tweak the numbers on the EPF calculator to estimate the level of contributions you might need to meet your financial needs. 

Frequently asked questions

1)How much will I get from EPF after retirement?

At the age of 58, you can withdraw the  complete amount in your EPF account. The amount can be easily calculated by using the Fi Money EPF Calculator.

2)How is EPF commutation calculated?

Employees and employers both make equal contributions to the EPF. The contribution is equal to 12% of the base pay plus the dearness allowance. The entire 12% contribution from the employee goes towards the EPF. The employer's contribution, on the other hand, is split between the EPF and EPS.

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