Dip into your retirement kitty only in emergencies

Try to replenish corpus either by investing more in EPF or open a separate PPF account

Anuradha Sriram, head of employee benefits practice at Towers Watson India, says the average employee withdraws around 70 per cent from his Employees’ Provident Fund (EPF) corpus. Quite a telling number, as it means that most Indians eat into their retirement corpus substantially. Of course, there are circumstances where one needs to withdraw from one’s retirement corpus;  sometimes, it makes sense to do so as well. “Like an urgent medical requirement, when the amount required for treatment is higher than the cash or medical corpus collected,” says certified financial planner Pankaj Mathpal. Or in times like now, when economic conditions are not very upbeat and one loses his or her job.

“Many times, individuals may take more than three to four months to get another job. In such cases, if there is a requirement for money, he or she will have to dip into their long-term corpus,” says Mathpal. Certified financial planner Anil Rego says withdrawal from retirement kitty can be permitted if the withdrawn corpus goes into an asset such as a house. “If withdrawing from provident fund can save you high interest payment like it is now, it makes sense to pull out some retirement fund and prepay,” he says.

Employees are mostly able to withdraw from EPF because the clauses are very wide, says Sriram. For instance, you can withdraw up to 50 per cent of the total corpus for your child’s marriage or education, thrice during your service tenure. You can withdraw up to six times your monthly salary or the total corpus amount, whichever is lower, for medical needs. You can withdraw up to 36 times your monthly salary once during your service tenure for repayment of home loans.

Similarly, from the seventh year, you can also withdraw once a year from your PPF account This withdrawal must not exceed 50 per cent of the balance at the end of the immediate preceding year or the fourth, whichever is lower. However, the entire amount in the PPF account can be withdrawn only on maturity. The rules for some products are quite stringent. Other products such as pension schemes from mutual funds allow you to withdraw only after the age of 58. Any withdrawal before that comes at a cost.

Ideally, all your goals should be planned for separately, so that there is no need to dip into any corpus at any point of time. Also, withdrawing from any of the retirement instruments erodes your long-term corpus and dilutes the power of compounding. If you do so, put in more money when you have a surplus through the EPF, if the employer allows you to do so. Otherwise, open a separate PPF account.