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.

Published: November 30, 2019 at 11:19 am

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!).

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!!

AgeAnnual ExpensesAnnual investment for retirementTotal Portfolio ReturnCorpus (year-end)
30   4,00,000   3,99,5228%                4,31,484
31   4,24,000   4,23,4938%                9,23,375
32   4,49,440   4,48,9038%              14,82,061
33   4,76,406   4,75,8378%              21,14,530
34   5,04,991   5,04,3878%              28,28,431
35   5,35,290   5,34,6518%              36,32,128
36   5,67,408   5,66,7308%              45,34,766
37   6,01,452   6,00,7348%              55,46,340
38   6,37,539   6,36,7788%              66,77,767
39   6,75,792   6,74,9848%              79,40,971
40   7,16,339   7,15,4838%              93,48,970
41   7,59,319   7,58,4128%          1,09,15,973
42   8,04,879   8,03,9178%          1,26,57,482
43   8,53,171   8,52,1528%          1,45,90,404
44   9,04,362   9,03,2818%          1,67,33,180
45   9,58,623   9,57,4788%          1,91,05,911
46 10,16,141 10,14,9278%          2,17,30,504
47 10,77,109 10,75,8228%          2,46,30,833
48 11,41,736 11,40,3728%          2,78,32,901
49 12,10,240 12,08,7948%          3,13,65,030
50 12,82,854 12,81,3228%          3,52,58,060
51 13,59,8258%          3,66,10,093
52 14,41,4158%          3,79,82,172
53 15,27,9008%          3,93,70,614
54 16,19,5748%          4,07,71,124
55 17,16,7488%          4,21,78,725
56 18,19,7538%          4,35,87,690
57 19,28,9388%          4,49,91,452
58 20,44,6758%          4,63,82,519
59 21,67,3558%          4,77,52,377
60 22,97,3968%          4,90,91,379
61 24,35,2408%          5,03,88,630
62 25,81,3558%          5,16,31,857
63 27,36,2368%          5,28,07,271
64 29,00,4108%          5,38,99,410
65 30,74,4358%          5,48,90,973
66 32,58,9018%          5,57,62,638
67 34,54,4358%          5,64,92,859
68 36,61,7018%          5,70,57,651
69 38,81,4038%          5,74,30,348
70 41,14,2878%          5,75,81,346
71 43,61,1448%          5,74,77,817
72 46,22,8138%          5,70,83,405
73 49,00,1828%          5,63,57,881
74 51,94,1938%          5,52,56,783
75 55,05,8448%          5,37,31,014
76 58,36,1958%          5,17,26,404
77 61,86,3678%          4,91,83,240
78 65,57,5498%          4,60,35,747
79 69,51,0028%          4,22,11,525
80 73,68,0628%          3,76,30,941
81 78,10,1458%          3,22,06,459
82 82,78,7548%          2,58,41,921
83 87,75,4798%          1,84,31,757
84 93,02,0088%              98,60,129
85 98,60,1298%                             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?

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