Now that we took care of our retirement, lets see how to save for our future self till the age of retirement. PPF is another instrument of safe investment which has a current interest rate of 7.9% as of 2019. Its a 15 year commitment in which you can invest anything between Rs. 500 to Rs.1.5 lakh per year. After 15 years, you can either withdraw everything or increase the number of years by a block of 5 years either with investment or without investment. Its a great way to use the compound interest same as EPF.
Lets see an example, suppose you start investing at 22 years. After 15 years, at the age of 37, you will have earned a sum of Rs. 43.60 lakhs. Out of which you can withdraw 60% if you want to continue the next 5 year block. So, you can withdraw 60% and reinvest Rs.7.5 lakhs for the next 5 years and use the rest of Rs. 18.6 lakhs for your personal use over the period of the 5 years. Do the same at every 5 years, reinvest Rs.7.5 lakhs and use Rs. 13.5 lakhs over the next 5 years. Do this and you can get Rs. 10.5 lakhs, Rs. 8.7 lakhs, Rs. 7.6 lakhs, Rs. 7 lakhs over each 5 year period till 60 years and finally withdraw the remaining Rs. 24 lakhs for retirement. You can use PPF as you wish and whenever you want to withdraw after the initial 15 years. The total investment you did here was Rs. 22.5 lakhs and you got returns of Rs. 83 lakhs over the entire working life. You can add your spouse’s account as well, so that both keep getting the same amount twice in 5 years period.
One more thing you can do is not to withdraw ever from 1 account and retire even richer with the initial investment of Rs. 22.5 Lakh for 1 of your account. It would fetch a sum of Rs. 3.14 Cr by 62 years of age. That is the power of compounding. You can also start a PPF account for your child as soon as they are born and when they turn 25, they already have Rs. 1.16 Cr by investing Rs. 1.5 lakh for 25 years (i.e total of Rs. 37.5 lakhs). But, note that only 1 gaurdian can open the child’s account and a total of Rs. 1.5 lakh can be invested in the parents and childs account together.