EPF Withdrawal Rules: Experts clearly state that EPF is not a simple savings account or piggy bank that can be emptied as soon as life's expenses increase. Simply put, every ₹1 withdrawn at age 28 equals ₹12 at retirement.

EPF Withdrawal Rules: For employed individuals, the Employee Provident Fund (EPF) is the safest and most reliable way to accumulate retirement funds. However, sometimes people withdraw money from their PF account to cover minor expenses or emergencies. If you're thinking of doing so, stop! According to financial advisors, a small amount withdrawn from your PF account in your youth can significantly dent your old-age fund.

Understanding the mathematics of the data, if you withdraw just ₹1 lakh from your EPF account at the age of 28, then at the time of retirement i.e. at the age of 60, you may have to suffer a direct loss of around ₹11.78 lakh.

Why is it so expensive to withdraw money from PF?

The biggest reason behind this huge loss is the power of compounding. Your money is locked up in PF for a long time, so the interest earned on it is added to the principal the following year, and then interest is earned on that interest as well.

According to Kunal Kabra, founder of fintech platform Custodian Life, "Every premature EPF withdrawal is like a permanent tax on your retirement fund. The younger you withdraw, the greater the loss. The multiplier effect of compounding works both ways. It creates wealth with patience, and it can also lead to significant loss of money if withdrawn prematurely."

How did a withdrawal of ₹1 lakh result in a loss of ₹11.78 lakh?

The EPFO ​​currently offers an excellent annual interest rate of 8.25% on PF contributions. Kunal Kabra explains how a small withdrawal reduces your final corpus through an example.

Suppose an employee starts working at age 23 and contributes to EPF until age 58. He invests ₹5,000 per month for the first 10 years, ₹10,000 per month for the next 10 years, ₹20,000 per month for the next 10 years, and ₹25,000 per month for the last 5 years. If he doesn't withdraw a single rupee during his entire 35-year career, his total fund at retirement will be approximately ₹2.11 crore.

But if he withdraws midway then:

Withdrawal of ₹1 lakh: If he withdraws just ₹1 lakh at the age of 28, his final corpus at retirement will be reduced by about ₹11.78 lakh.

Withdrawal of ₹5 lakh: If he withdraws ₹5 lakh for a major expense, his total corpus at the time of retirement will reduce by around ₹60 lakh.

Financial Expert Advice: Don't mistake PF for a savings account

Experts clearly state that EPF isn't a simple savings account or piggy bank that can be emptied as soon as life's expenses rise. Simply put, every ₹1 withdrawn at age 28 equals ₹12 at retirement.

Therefore, unless there's a serious medical emergency or a dire situation, don't touch your PF funds at all. Maintain a separate emergency fund for short-term needs to ensure your old age is secure.

 PC: Money Control