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50-year-old with NPS, EPF, gratuity, and leave encashment: How to secure a Rs.60,000 monthly pension?

Ramalingam

Ramalingam Kalirajan  |7097 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 16, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Jun 01, 2024Hindi
Money

Hello Sir I have NPS 25 Lakhs EPF 23 Lakhs. I will get Gratuity 12 lakhs and Leave encashment 15 lakhs. No FD No PPF no mutual fund. I need atleast 60 k pension. I will be retiring on 2026. How to manage this ?

Ans: You’re planning to retire in 2026 and need Rs. 60,000 monthly as a pension. Let's assess your situation and build a robust retirement strategy.

Current Financial Standing
NPS (National Pension System): Rs. 25 lakhs

EPF (Employees' Provident Fund): Rs. 23 lakhs

Gratuity: Rs. 12 lakhs

Leave Encashment: Rs. 15 lakhs

These assets are solid building blocks for your retirement. However, you have no Fixed Deposits, PPF, or mutual funds, which limits your portfolio’s diversity. Let’s explore how to efficiently utilize these funds to meet your pension needs.

Assessing Your Pension Requirement
You aim for a Rs. 60,000 monthly pension post-retirement. This amount should cover your living expenses, healthcare, and any other financial commitments you might have. Considering inflation, this pension needs to last for at least 20-25 years or more.

Structuring Your Retirement Portfolio
Diversification is crucial to managing risk and ensuring stable returns. Here’s how you can structure your portfolio:

1. NPS and EPF Utilization
NPS Corpus: At retirement, you can withdraw up to 60% of the NPS corpus as a lump sum and the remaining 40% must be used to purchase an annuity.

EPF Corpus: You can withdraw the entire EPF corpus as a lump sum at retirement. This corpus can act as your base for creating a stable income stream.

2. Gratuity and Leave Encashment Deployment
Your gratuity and leave encashment together amount to Rs. 27 lakhs. These can be strategically invested in instruments that offer both growth and stability.

3. Invest in Monthly Income Plans (MIPs)
MIPs are mutual funds designed to provide regular monthly income. You can allocate a portion of your gratuity and leave encashment towards these. MIPs usually have a balanced mix of equity and debt, offering both growth and periodic payouts.

4. Create a Fixed Income Stream
Consider investing in Senior Citizen Savings Scheme (SCSS) or Post Office Monthly Income Scheme (POMIS) once you retire. These instruments provide regular monthly income with relatively lower risk.

Managing the Inflation Impact
Inflation will erode the purchasing power of your Rs. 60,000 pension over time. To combat this, you need to ensure that a portion of your investments is in growth-oriented assets.

1. Balanced Mutual Funds
Balanced mutual funds offer a mix of equity and debt, providing growth potential while managing risk. They can help you beat inflation over the long term. Consider systematic withdrawals from these funds to supplement your pension.

2. Step-Up SIPs for Growth
If you start investing now in equity mutual funds through SIPs, you can accumulate a corpus that will help increase your pension in later years. Step-up SIPs, where you increase your investment amount annually, can be particularly beneficial.

3. Dynamic Asset Allocation
Adopt a dynamic asset allocation strategy. This involves shifting between equity and debt based on market conditions and your financial goals. It helps in optimizing returns while managing risks.

Emergency Fund Maintenance
Retirement can bring unexpected expenses. Ensure you have an emergency fund equivalent to at least 6-12 months of living expenses. This should be kept in liquid assets like a savings account or liquid mutual funds.

Health Insurance Planning
Health expenses can be a major financial burden post-retirement. Ensure that you have adequate health insurance coverage. Since you’ll be retiring soon, check if you can increase your health cover. Additionally, you can consider a super top-up plan for added coverage.

Estate Planning and Nomination
It’s essential to have a clear estate plan to ensure your assets are transferred smoothly to your beneficiaries. Nominate your family members on all financial instruments and consider writing a will.

Regular Review and Monitoring
Retirement planning is not a one-time task. Regularly review your portfolio and financial plan to ensure it’s on track to meet your goals. Adjust your investments based on market conditions and life changes.

Best Practices for a Secure Retirement
Start Early: The sooner you begin investing, the more time your money has to grow.

Diversify: Don’t rely on a single investment type. Diversification reduces risk.

Stay Informed: Keep up with changes in financial regulations, tax benefits, and market trends.

Managing Debt and Expenses
You didn’t mention any current debts, which is positive. However, ensure that you don’t take on new loans close to retirement. Plan your expenses meticulously, focusing on essential spending.

Balancing Risk and Returns
As you approach retirement, it’s wise to gradually shift from high-risk investments to more stable ones. However, don’t avoid equities entirely, as they help in combating inflation.

Finally
You’re on the right track with your NPS, EPF, and other savings. To achieve a Rs. 60,000 monthly pension, diversify your investments and focus on both income generation and growth. Regularly review your financial plan and stay informed about market trends.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |7097 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 06, 2024

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Sir, Im 50 years old and just started thinking about my retirement life and start deciding to invest in NPS of 20000 as regular basis and opened PPF account contributing 6000 monthly and starts SIP through online app of Groww of 1000 on quant small cap fund , nippon multi cap find , nippon india index fund of 1000 each on monthly Basis And 9 lakhs amount invested in MIS I need your valuable suggestion and your opinion for to regulate and review in a proper way for to set a better retirement at 60 as my income is 35000 p. m I have no loans and no financial commitment as if now I need your valuable guidance in this regard
Ans: Investing for retirement is a crucial step in ensuring a financially secure future. Starting at 50, you still have a decade to build a robust retirement corpus. Your current investment strategy is commendable, but a few adjustments and regular reviews can enhance your financial security. This guide provides a detailed analysis and suggestions to help you refine your investment strategy for a comfortable retirement at 60.

Assessment of Current Investments

National Pension System (NPS)

Contributing Rs. 20,000 regularly to the NPS is a smart move. NPS offers a balanced investment mix with exposure to equities, corporate bonds, and government securities. Its tax benefits under Section 80C and additional Rs. 50,000 under Section 80CCD(1B) make it attractive. However, the withdrawal rules and taxation on annuity purchase need consideration. Reviewing the asset allocation periodically is essential.

Public Provident Fund (PPF)

A monthly contribution of Rs. 6,000 to PPF is a sound choice. PPF offers tax-free returns and is a safe, long-term investment. The 15-year lock-in period can be a drawback, but partial withdrawals are allowed after the 7th year. The current interest rate of around 7-8% is beneficial, but it is subject to government revisions.

Systematic Investment Plan (SIP)

Investing Rs. 1,000 each in multiple mutual funds through SIPs is wise. However, diversifying too much can dilute returns. Evaluating the performance and expense ratios of these funds is crucial. Actively managed funds often outperform index funds due to the fund manager's expertise in stock selection.

Monthly Income Scheme (MIS)

Investing Rs. 9 lakhs in MIS provides a regular income, which is useful for liquidity needs. However, the interest rates are lower compared to equity-based investments. Reviewing this investment periodically and considering alternatives for better returns is advisable.

Detailed Analysis and Suggestions

National Pension System (NPS)

Asset Allocation: NPS allows you to choose the allocation between equities, corporate bonds, and government securities. Opt for an aggressive allocation towards equities, especially since you have a decade until retirement. This can boost your returns significantly.

Periodic Review: Review your NPS allocation annually. Adjust the equity exposure based on market conditions and your risk appetite.

Tax Benefits: Utilize the additional Rs. 50,000 tax benefit under Section 80CCD(1B) if not already doing so. This can reduce your taxable income further.

Public Provident Fund (PPF)

Lock-in Period: The 15-year lock-in period can be restrictive. However, consider it as a safety net for your retirement corpus. After the initial 15 years, you can extend it in blocks of 5 years.

Interest Rates: Keep an eye on the government announcements regarding PPF interest rates. They are reviewed quarterly, and any reduction can impact your returns.

Partial Withdrawals: After 7 years, you can make partial withdrawals for emergencies. This adds a layer of liquidity to your investment.

Systematic Investment Plan (SIP)

Fund Selection: The Quant Small Cap Fund and Nippon Multi Cap Fund are good choices. However, actively managed funds have the potential to outperform index funds. Focus on funds with a strong track record and lower expense ratios.

Direct vs. Regular Plans: Investing through regular plans via a Certified Financial Planner (CFP) can be beneficial. CFPs provide valuable advice and periodic reviews. Direct plans might save on expense ratios but lack professional guidance.

Portfolio Diversification: Avoid over-diversification. Concentrate on a few high-performing funds. This strategy can enhance returns and simplify tracking your investments.

Monthly Income Scheme (MIS)

Interest Rates: MIS offers stable but lower interest rates compared to equity investments. Consider the reinvestment risk if interest rates decline.

Alternatives: Explore alternatives like Senior Citizens’ Savings Scheme (SCSS) after turning 60. SCSS offers higher interest rates and tax benefits under Section 80C.

Additional Investment Strategies

Equity Exposure

Increasing your equity exposure can significantly boost your retirement corpus. Consider investing in large-cap and blue-chip mutual funds. These funds offer stability and growth potential.

Debt Investments

Balance your portfolio with debt investments to manage risk. Apart from PPF, consider corporate bonds or debt mutual funds. These provide better returns than traditional fixed deposits.

Emergency Fund

Maintain an emergency fund equivalent to 6-12 months of expenses. This ensures liquidity during unexpected events. Keep this fund in liquid assets like savings accounts or liquid mutual funds.

Health Insurance

Health expenses can deplete your retirement savings. Ensure you have adequate health insurance coverage. Review your policy periodically and increase coverage if necessary.

Tax Planning

Utilize Tax Deductions

Maximize tax deductions under Section 80C, 80D, and 80CCD. This includes NPS, PPF, health insurance premiums, and home loan principal repayments.

Tax-efficient Investments

Invest in tax-efficient instruments like ELSS (Equity Linked Savings Scheme) mutual funds. They offer tax benefits under Section 80C and potential for higher returns.

Periodic Review and Adjustments

Annual Review

Conduct an annual review of your investment portfolio. Assess the performance, risk, and alignment with your retirement goals.

Adjust Allocations

Adjust your asset allocation based on market conditions and life changes. Increase debt allocation as you approach retirement to safeguard your corpus.

Rebalance Portfolio

Rebalance your portfolio periodically to maintain the desired asset allocation. This ensures you stay on track with your retirement goals.

Building a Robust Retirement Corpus

Target Corpus Calculation

Calculate the target retirement corpus based on your expected expenses post-retirement. Consider inflation and healthcare costs.

Systematic Increase in Investments

Increase your investment amounts annually in line with income growth. This strategy helps in accumulating a substantial retirement corpus.

Avoid Early Withdrawals

Avoid withdrawing from your retirement savings prematurely. Early withdrawals can derail your retirement planning.

Investment Education

Stay Informed

Stay informed about financial markets and investment options. This helps in making informed decisions and adjusting strategies as needed.

Consult Professionals

Seek advice from a Certified Financial Planner (CFP) regularly. A CFP provides tailored advice based on your financial situation and goals.

Conclusion

You have taken commendable steps towards securing your retirement. Regular contributions to NPS, PPF, and SIPs, along with MIS investments, form a strong foundation. However, a few adjustments and periodic reviews can enhance your strategy. Increasing equity exposure, balancing with debt investments, and effective tax planning are key. Regular reviews and consultations with a CFP will ensure you stay on track.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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Milind

Milind Vadjikar  |672 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Oct 28, 2024

Asked by Anonymous - Oct 22, 2024Hindi
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Hello sir. I am 46 have plan to retire in 6 months. Current expenditure 90k including child education two kids with 13 years and 7 years. I have 1 cr fund fd+ 1 cr epf + 30lakh in ppf + 70 lakh in mf. I am expecting every year 3 to 4 lakh as travel additional expense. I need to take care my parents both 70 and 80 age. I have 2 cr asset house. Let me know how much more fund required and how to manage this fund till next 35 years.
Ans: Hello;

You should have a minimum corpus of 5 Cr. in a moderate risk equity savings type mutual fund for eg Kotak equity savings fund.

Then you can begin SWP at the rate of 3% leading to monthly income of around 1.25 L(pre-tax).

Assuming 9% return from the scheme, despite the 3% SWP, the corpus will grow in line with inflation (6%) so as to protect against the same for a long tenure of 35 years. Of course the returns on an average are assumed to be 9% but in reality they could be 12% or even 5% some year.

Your kids will need funds for their higher education in 5 and 10 years timeframe from now which you need to account for, as well.

Get your parents enrolled for Aayushman Bharat scheme as it is now applicable to all senior citizens above 70.

Plus also ensure good term life cover for yourself and family health care policy for all family members including parents.

Ensure 6 months of expense coverage as emergency fund in liquid assets.

Happy Investing;

You may follow us on X at @mars_invest for updates.

*Investments in mutual funds are subject to market risks. Please read all scheme related documents carefully before investing.

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Radheshyam Zanwar  |1054 Answers  |Ask -

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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