Can we avoid equity and use EPF plus PPF alone for retirement planning?

Why take so much risk in the stock market if returns are not guaranteed and can be low even after a long time? Why not use EPF plus PPF alone for retirement planning? Let us find out with examples.

Retirement planning with EPF and PPF alone with no equity

Published: November 30, 2019 at 11:19 am

Last Updated on

Sooner or later new mutual fund or direct equity investors recognise that the long term India story or the long term equity stories need not always reflect in individual returns. After either prolonged losses or after understanding that one cannot expect returns from mutual fund SIPs! (Do this instead!) and how investors get fooled into buying mutual funds with wrong expectations, many ask, “if after a long time I am only going to get 10% or less (no guarantees!) before tax with so much risk, why not use EPF plus PPF alone for retirement planning? Let us find out in this post.

Another important lesson is the biggest risk in the stock market is not a deep crash but years and years of sideways movement. See for example: How can a 400% profit result only in 8% return?! Hodling to the moon Risk!

Short Answer: In principle, it is possible to plan for retirement with EPF + PPF alone without equity. However, there are many assumptions involved (some unrealistic), and not everyone can pull this off. Even those who can pull it off are taking a bigger risk by avoiding equity.

What are the advantages of EPF and PPF? Although EPF and PPF rates have gone down over the last three decades, there is still a huge disparity between “officially reported” inflation numbers and how these rates are fixed. It should be obvious political considerations determine the rate and not economic.

With most of the population used to a sense of entitlement thanks to years and years of sops and subsidies, it would be hard for the government (although it is trying) to drop and/or vary these rates by a big amount.

Both EPF and PPF (if started early on) support early retirement (defined as at an age less than age 58 or 60), unlike NPS. See: EPF vs NPS: Should you shift to NPS because the govt wants you to?

Both EPF and PPF are EEE instruments will full tax-free withdrawals. With 80C automatically taken care of by these, EPF (via VPF) has no restrictions on maximum investment. This will offset the 1.5 Lakh a year limit set by PPF.

A couple with single or double income can operate two PPF accounts making this limit effectively three lakhs. Also see: How much can we invest in multiple PPF accounts?

A PPF account can be held life-long with or without contributions. Both have different withdrawal limits.  See: Public Provident Fund (PPF) Extension Rules Upon Maturity

We shall assume the entire post-retirement corpus will be managed with PPF + small saving schemes to ensure 8% (tax-free or post-tax return for life).

What are the assumptions necessary while using only EPF + PPF? The list is long, some qualitative and some quantitative. Readers are urged to pay close attention to each.

  1. Availability of a large emergency fund throughout the lifetime. At least until retirement, it will be supported from income.
  2. The current health insurance premium is part of annual expenses. If one does not have personal health insurance, then it is better to buy one or at least account for its current expense in the current annual expensesHelpful resources: This free ebook on Health Insurance will help you choose a policy with ease! Also see: Health Insurance Policy Comparison Spreadsheet
  3. The inflation assumed throughout a lifetime is 6-8%. Realistic personal inflation numbers could be higher. Use this tool to check: Personal Inflation Calculator. If one argues that inflation will lower with age, the constant 8% return from EPF/PPF (see next point) will also not hold. Also, do not assume your expenses will decrease after retirement! A single disease like diabetes or heart-related ailments can be disastrous.
  4. The EPF and PPF rate is assumed to 8% a year until retirement. This is not realistic, but we will work with it to see what we get. Also see: The evolution of Public Provident Fund (PPF) Interest Rates
  5. The projections shown below are based on current expenses that will persist in retirement. Please recognise that it does not account for the cost of buying a new mobile or laptop every five years or other electronic appliances. Unless you repeat the calculation each year, it will not account for changes in lifestyle that add to the expenses that will persist in retirement.
  6. Post-retirement after-tax return is assumed to be 8%. This is too hard to pull off.

Before we begin, please answer this question

Regardless of whether you pay tax on the annual income or not, would you rather retire in the 5% or 0% tax slab or in the 20% or 30%? That is should your (potential) annual income  be 5 Lakh or 15 Lakh?

Retirement Planning with EPF and PPF

Illustration 1 (6% inflation)

This is a tabulation with about 2% returns (after) above inflation!! We are considering a 30-year old retiring at 50 and hopes to live until age 85.  Considering the current work culture, most people will not or cannot work beyond 50.  Age 60 cannot be used as the retirement age for a 30-something in 2019. They may either die before that or worse be too sick for gainful employment.

The year-end retirement corpus grows year on year at 8%. After age 50 withdrawals equal to annual expenses are made from it. This is why it goes to zero at age 85 (and hopefully not before!).

Join our 1500+ Facebook Group on Portfolio Management! Losing sleep over the market crash? Don't! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free! Did you miss out on the lockdown discount? You can still avail it! Follow instructions in the above link!

Notice that the annual investment is pretty equal to annual expenses even with 2% real return!! How many can this pull this off? Remember we have not accounted for the present and future needs of children. Not accounted for EMIs!!

Age Annual Expenses Annual investment for retirement Total Portfolio Return Corpus (year-end)
30    4,00,000    3,99,522 8%                 4,31,484
31    4,24,000    4,23,493 8%                 9,23,375
32    4,49,440    4,48,903 8%               14,82,061
33    4,76,406    4,75,837 8%               21,14,530
34    5,04,991    5,04,387 8%               28,28,431
35    5,35,290    5,34,651 8%               36,32,128
36    5,67,408    5,66,730 8%               45,34,766
37    6,01,452    6,00,734 8%               55,46,340
38    6,37,539    6,36,778 8%               66,77,767
39    6,75,792    6,74,984 8%               79,40,971
40    7,16,339    7,15,483 8%               93,48,970
41    7,59,319    7,58,412 8%           1,09,15,973
42    8,04,879    8,03,917 8%           1,26,57,482
43    8,53,171    8,52,152 8%           1,45,90,404
44    9,04,362    9,03,281 8%           1,67,33,180
45    9,58,623    9,57,478 8%           1,91,05,911
46  10,16,141  10,14,927 8%           2,17,30,504
47  10,77,109  10,75,822 8%           2,46,30,833
48  11,41,736  11,40,372 8%           2,78,32,901
49  12,10,240  12,08,794 8%           3,13,65,030
50  12,82,854  12,81,322 8%           3,52,58,060
51  13,59,825 8%           3,66,10,093
52  14,41,415 8%           3,79,82,172
53  15,27,900 8%           3,93,70,614
54  16,19,574 8%           4,07,71,124
55  17,16,748 8%           4,21,78,725
56  18,19,753 8%           4,35,87,690
57  19,28,938 8%           4,49,91,452
58  20,44,675 8%           4,63,82,519
59  21,67,355 8%           4,77,52,377
60  22,97,396 8%           4,90,91,379
61  24,35,240 8%           5,03,88,630
62  25,81,355 8%           5,16,31,857
63  27,36,236 8%           5,28,07,271
64  29,00,410 8%           5,38,99,410
65  30,74,435 8%           5,48,90,973
66  32,58,901 8%           5,57,62,638
67  34,54,435 8%           5,64,92,859
68  36,61,701 8%           5,70,57,651
69  38,81,403 8%           5,74,30,348
70  41,14,287 8%           5,75,81,346
71  43,61,144 8%           5,74,77,817
72  46,22,813 8%           5,70,83,405
73  49,00,182 8%           5,63,57,881
74  51,94,193 8%           5,52,56,783
75  55,05,844 8%           5,37,31,014
76  58,36,195 8%           5,17,26,404
77  61,86,367 8%           4,91,83,240
78  65,57,549 8%           4,60,35,747
79  69,51,002 8%           4,22,11,525
80  73,68,062 8%           3,76,30,941
81  78,10,145 8%           3,22,06,459
82  82,78,754 8%           2,58,41,921
83  87,75,479 8%           1,84,31,757
84  93,02,008 8%               98,60,129
85  98,60,129 8%                              0

Illustration 2 (7% inflation)

If inflation is increased to 7%, the annual investment become 129% of annual expenses!!

Illustration 3 (8% inflation)

If inflation is increased to 8%, the annual investment become 167% of annual expenses!!

Let us now include some equity exposure so that after-tax portfolio return over the years looks like this.

Retirement Planning illustration with some equity exposure the returns assumed each year are shown

Illustration 4 (6% inflation with equity exposure as above)

The annual investment drops from 100% to 91%. of annual expenses. This is a cumulative saving of 13.7 lakhs over the next 20 years! Even this 91% will be hard for many to pull off!


Investors who invest in equity and embrace daily volatility and learn how to manage it can invest significantly less for retirement.  The investment risk is guaranteed but is eminently manageable given enough time.

Investors who want to stay away from all market-linked returns (although PPF and EPF are also weakly market-linked) will have to pay a different price. In this case, the investment amount will be higher. This the guaranteed risk here and is a lot harder to manage given the needs of children, EMIs and other unexpected expenses.   Using EPF and PPF, one will have to work for the designated term (assumed while planning, 50 here) and cannot quit earlier. This is a risk in case health issues intervene.

When the investment budget is rigid (in the case of EPF + PPF with no equity), one cannot accommodate additional expenses that are either good or bad needs and wants.

Whether we choose to avoid the stock market or not, every option, every choice has an associated risk. It is only a question of which is more acceptable and which is more manageable.

Would you instead combat stock market volatility or combat your monthly budget to avoid market risk?

Do share if you found this useful
Join our 1500+ Facebook Group on Portfolio Management! Losing sleep over the market crash? Don't! You can now reduce fear, doubt and uncertainty while investing for your financial goals! Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community. The 1st lecture is free! Did you miss out on the lockdown discount? You can still avail it! Follow instructions in the above link!

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!)

About the Author

Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com

About freefincal & its content policy

Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site. Follow us on Google News
Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)

Connect with us on social media

Our Publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingThis book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel


This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when traveling, how traveling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)  

Free Apps for your Android Phone

Comment Policy

Your thoughts are the driving force behind our work. We welcome criticism and differing opinions.Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.


  1. Hello

    I believe by adopting risk-free option (only PPF+EPF), actually you taking a risk of falling short of target (should your targeted value increase due to unexpected situation).


  2. Hi Pattabiraman,

    Now a days EPF also invests 15% of its assets in Equity markets (index funds). Is it not safe to assume that we will get 8%*85%+12%*15% returns?

Comments are closed.