What To Do With Your Retirement Accounts During An Employment Lapse?
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What To Do With Your Retirement Accounts During An Employment Lapse?

View Plans
  • 30th Nov 2021
  • 277

What To Do With Your Retirement Accounts During An Employment Lapse?

Whether you lost your job or resigned, a sudden loss of employment can derail your financial planning. Unfortunately, retirement accounts are the ones that usually take a significant blow. However, planning and re-analysing your financial priorities can help you better manage your retirement accounts in times of temporary financial instabilities arising out of employment lapses.

Keep calm and consider the following three suggestions to better tackle this temporary crisis.

1. Utilise Your Gratuity

Gratuity is the amount that the employer pays to all the employees as a token of gratitude for the number of years in service. As per the Payment of Gratuity Act, 1972, it is the statutory obligation of an employer to clear the gratuity dues of any former employee within 30 days of receiving the application. An employee must serve a minimum tenure of 5 years or more to be eligible for gratuity.

The gratuity amount is usually an unexpected cash flow into your finances. It is pretty likely that you can manage your daily finances without engaging your gratuity amount. In such a scenario, you can consider using this extra fund towards your retirement fund.

For example, you can also consider buying an immediate annuity plan or a deferred one through your gratuity amount without straining your immediate personal finances.

2. Don’t Touch Your EPF Account

The Employee Provident Fund or EPF is a retirement scheme where the employer matches the contribution of the employee to build a retirement corpus for the employee. Under The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, an employer must provide EPF benefits to their employees.

You are eligible to close your EPF account and withdraw the entire amount after two months of quitting your job. However, it is advisable to keep your EPF account untouched for the following reasons.

  • On re-employment, you can transfer the amount in your existing EPF account to the new EPF account. This will help in getting the benefits of compounding in future.
  • Your EPF account can keep earning interest for 36 months after quitting your job. So, it will help in the compounding of your fund.

In unavoidable circumstances, consider partial withdrawals from your EPF account.

3. Review your Expenses

It is time to get back to basics. Make a budget for your household expenses. You can surely find certain expenses that can be curtailed or removed altogether for the time being. No need to take drastic measures. Consider little steps like using public transport more frequently than a personal vehicle, keeping an eye for discounts or comparing and bargaining prices while shopping for essential items, etc.

Having said that, never curtail on health insurances, if any. A medical emergency during unemployment can be a nightmare. So, try to continue your insurance premiums like before.

The sudden onset of unemployment is challenging, but you must face it with a never-say-die spirit and a calm state of mind. Bad times can bring new and grand opportunities. Once you draw a clear path to handle your retirement accounts, embark on your mission to find a way or make a new one.

- A Consumer Education Initiative series by Kotak Life

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