Beware! PF withdrawal will impact your retirement & social security

When we were kids, one of the common things we did was to put our pocket money in our piggy bank. We had nothing to worry back then except for deciding maybe which ice cream flavor to choose. We didn’t have the urge to buy a car or build a house. So, we used to break it when we needed it to get ourselves a treat, we used it without worrying about future. PF withdrawal and Pension schemes are akin to our retirement piggy bank.

As we grow up, we put our savings towards them to create a hefty retirement corpus. But it’s a completely different ballgame now. We have got a lot of things to spend on – buying a car, buying jewelries, building a house and so on. To make things worse, our actions have a far-reaching consequence which we sometime do not fully consider before breaking into our savings. If we succumb to our urges and break the “piggybank” and jump straight into it, we end up with a huge hit in our retirement corpus.

So, Govt. in principle has made it a very stringent process to access PF corpus. Nevertheless, the process is as strong as the individuals in it, so there are still ways you can circumvent them.

Rules in PF withdrawal

Under special circumstances, you can withdraw funds partially from EPF if you fulfill some conditions. We have collated the important points below:

Reasons for withdrawalMax withdrawal limitMin period contributionConditions
Education50% of your EPF contribution7 yearsOnly to finance your further studies or the education of you children post 10th standard
Marriage50% of your EPF contribution7 yearsMarriage of self, brother or sister, son or daughter
Land purchases24 x (Your monthly wages + DA)5 yearsLand to be owned by you, spouse or both jointly
Construction or purchase of a new house36 x (Your monthly wages + DA)5 yearsHouse to be owned by you, spouse or both jointly
Home renovation12 x Your monthly wages5 yearsHome to be renovated should be owned by you, spouse or both jointly
Home loan repayment90% from both yours and the employer’s contribution to the EPF1 yeari. You, your spouse or both jointly own the purchased property
   ii. You  must furnish the required documents put forth by the EPFO, for home loan repayment
   iii. The corpus in your account (or together with your spouse) has to be above Rs. 20,000
Before retirement90% of the accumulated corpus with interestAfter you reach 57 years of ageNone
Rules of withdrawals in Provident Funds

You can also make a 100% PF withdrawal from your EPF account. However, you are eligible to do so only when you’re retired or when you’re unemployed for more than 2 months (must be certified by a gazetted officer).

The process to be withdraw funds can done online through your EPF Portal.

The hit on your returns

In our previous article, we illustrated the effect of annual step up in a provident fund and the level of impact it created in your corpus. Similarly, let’s see what happens to your maturity amount if you make a PF withdrawal.

Assume Jacob is an employee in an MNC drawing a salary of ₹60,000 per month. He contributes ₹7,200 on a monthly basis towards his PF. At the end of 10th year, he is in need of funds to renovate his house. If we refer to the above table, we can see that for home renovation the maximum withdrawable amount is 12 times the monthly wages.

Maturity values on PF remaining intact and withdrawn

Jacob decided to withdraw the maximum permissible limit for the renovation process and this came to the tune of ₹7,20,000 (12×60,000). After withdrawing the said amount, he had ₹6,05,993 in his corpus. He continued with the same contribution of ₹7,200 for another 20 years. Since he withdrew the money, his corpus took a hit of almost 53%. Jacob could’ve avoided this, if he had only planned his actions better.

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