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50-year-old with NPS, EPF, gratuity, and leave encashment: How to secure a Rs.60,000 monthly pension?
Ramalingam Kalirajan |7290 Answers |Ask -Follow
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
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
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
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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