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Ramalingam

Ramalingam Kalirajan  |5295 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 26, 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 - Feb 25, 2024Hindi
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I will be retiring in May 2024. Iam working in a private ltd. Organization. I have opted for "Pension on higher wages" with EPFO. As per EPFO working, I have to pay arrears of about Rs 11 lacs to the pension fund. If this is done Iam eligible for monthly pension of abour Rs. 32,000. Pl guide and suggest if this is better or if I invest the amount(Rs.11 lacs) elsewhere it will be bebeficial. The risk in the pension scheme is- after my death, only half the pension amount will be received by my spouse. After this ther is no return of the amount of Rs.11 lacs.

Ans: Evaluating Pension on Higher Wages vs. Alternative Investments
Understanding Your Pension on Higher Wages
First, congratulations on your upcoming retirement! Opting for "Pension on higher wages" with EPFO means you will receive a monthly pension of about Rs. 32,000. This amount will be a steady source of income. However, you need to pay Rs. 11 lacs in arrears to the pension fund. After your death, your spouse will receive half the pension, and there will be no return of the Rs. 11 lacs.

Assessing the Risks and Benefits
Pros:

Steady Income: You receive a guaranteed monthly pension, which provides financial stability.
No Market Risk: Your pension amount is not affected by market fluctuations.
Spousal Benefit: After your death, your spouse will receive half the pension, ensuring some continued support.
Cons:

Arrears Payment: You need to pay Rs. 11 lacs upfront, which is a significant amount.
Limited Return: After both you and your spouse pass away, the Rs. 11 lacs is not returned.
Inflation Risk: The pension amount is fixed, and inflation might reduce its purchasing power over time.
Exploring Alternative Investment Options
Investing Rs. 11 lacs elsewhere could potentially offer higher returns. Here are some alternatives:

Mutual Funds:

Actively Managed Funds: These funds have professional fund managers who actively make investment decisions. They can potentially outperform the market, offering higher returns.
Regular Plans via MFDs: Investing through a Mutual Fund Distributor (MFD) with a Certified Financial Planner (CFP) credential can provide personalized advice and better fund management.
Fixed Deposits:

Low Risk: Fixed deposits are a safe investment option with guaranteed returns.
Flexibility: You can choose the tenure and amount of investment based on your needs.
Government Bonds:

Stable Returns: Government bonds offer stable and secure returns.
Interest Income: Bonds provide regular interest income, which can be a source of steady cash flow.
Comparative Analysis
When comparing the EPFO pension with alternative investments, consider these factors:

Risk Tolerance: EPFO pension offers low risk, while mutual funds can be volatile but potentially more rewarding.
Income Stability: EPFO pension provides a fixed monthly income, while investment returns can fluctuate.
Inflation Protection: Investments like mutual funds can potentially keep pace with inflation, unlike a fixed pension.
Personalized Strategy
Given your specific needs and risk tolerance, it might be beneficial to diversify your investments. Here are some suggestions:

Combination Approach: Consider allocating a portion of the Rs. 11 lacs to the EPFO pension and the rest to mutual funds and fixed deposits.
Professional Guidance: Seek advice from a Certified Financial Planner (CFP) to tailor a plan that aligns with your financial goals and retirement needs.
Empathy and Understanding
Your situation is unique, and it’s crucial to find a balance that offers security and growth. By exploring different options and understanding the pros and cons, you can make an informed decision. Remember, your financial well-being in retirement is paramount, and taking the time to plan carefully will pay off in the long run.

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  |5295 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 18, 2024

Asked by Anonymous - Dec 29, 2023Hindi
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Hellow Sir Me and my wife are going to retire from Government Service in mid 2024. We both will be eligible for monthly Pension (approx. 1.0 lakh for both) and will also get retirement benefits of approx 1 cr. At present we are paying EMI (around Rs.85000 pm) of house loan and there will be outstanding house loan liability/principal of Rs.30.00 lakh at the time of retirement. Please guide :- 1.Whether to pay outstanding loan in lumpsum from the retirement benefit OR pay through EMI (by reducing the EMI amount but extending loan tenure/present RoI is 9.20) and invest the amount equal to loan amount either in real estate or in MF etc. Here I would like to mention that I will have to pay Income Tax on my total Pension + investment returns. 2.How to invest retirement benefit corpus( 1 cr) so as to earn healthy returns. Kindly note that I have an unmarried Son (employed) but have to support him during marriage expenses etc.
Ans: Retirement Planning for a Secure Future
Congratulations on your upcoming retirement! It sounds like you and your wife have a comfortable pension and a good chunk of change coming your way from retirement benefits. Let's break down your questions and create a solid plan for your golden years.

Cleared House vs. Invested House Loan:

Debt Freedom vs. Investment Potential: There's a sweet satisfaction in becoming debt-free. But, investing the lump sum could potentially grow your money over time.

Run the Numbers: Consider the interest rate on your house loan (9.2%) and the potential returns from investments. If you can confidently find investments that beat 9.2% consistently, then investing might be the way to go.

EMI Comfort vs. Investment Flexibility: Think about how comfortable a lower EMI would be for your monthly budget. This frees up cash for future needs and allows you to invest a fixed amount regularly.

Remember: Talk to a Certified Financial Planner (CFP) to assess your risk tolerance and create a personalized plan. They can help you with detailed calculations and investment options based on your goals.

Investing Your Retirement Corpus (?1 Crore):

Multiple Income Streams: Aim for a diversified portfolio that generates multiple income streams. This could include actively managed mutual funds (MFs) across different asset classes (debt, equity, hybrid). Actively managed funds have professional fund managers who aim to outperform the market.

Security and Growth: Balance your investments between security and growth. Debt MFs offer stability and regular income, while equity MFs have the potential for higher returns but come with more risk.

Tax Planning is Key: Remember, you'll pay tax on your pension and investment returns. A CFP can help you structure your investments to minimize your tax burden.

Son's Needs: Factor in your son's marriage expenses. Keep a portion easily accessible for these planned costs.

Regular Investment with a CFP:

Regular investments through a CFP with a Mutual Fund Distributor (MFD) credential can be a good strategy. MFDs can offer personalized advice, access to various investment options, and handle paperwork.

Building a Secure Future:

By carefully planning your debt repayment, investments, and tax strategy, you can build a secure and comfortable retirement. Don't hesitate to seek professional guidance from a CFP. They can help you navigate the financial world and make informed decisions for your future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

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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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