How to Maximize LIC Pension for 9 Years of Service at Atl with 8 Lac Accumulated?

Ans: Ashok Kumar,

Thank you for your detailed query and the trust you have shown in seeking advice for your NPS investments. Your dedication to securing a better retirement is commendable.

Let's analyze and evaluate your current investment strategy in the National Pension System (NPS) to help you make informed decisions for maximum benefit at retirement.

Current NPS Allocation Analysis
You have a diversified allocation in the default schemes set up by the State Government:

SBI Pension Fund Scheme (34%)
UTI Retirement Solutions Pension Fund Scheme (32%)
LIC Pension Fund Scheme (34%)
Your total contribution till date is Rs. 12.216 lakhs with a notional gain of Rs. 6.026 lakhs, reflecting an approximate return of 9%.

This indicates a stable growth, but let's assess if this is optimal for your retirement goals.

Assessing the Need for Change
When considering changes to your investment strategy, several factors need to be evaluated:

1. Risk Tolerance and Time Horizon
Given your age of 50, your risk tolerance and investment horizon are crucial. With potentially 10-15 years until retirement, balancing growth and safety becomes essential.

2. Performance of Current Schemes
Review the past performance of the SBI, UTI, and LIC pension funds. While historical performance isn't a guarantee of future results, it provides insight into the fund managers' capabilities.

3. Fund Management Style
Actively managed funds can outperform the market with skilled managers. It’s important to verify that the fund managers of your current schemes have a consistent track record of delivering returns above the benchmark.

Recommendations for Optimal NPS Strategy
1. Re-Evaluation of Pension Funds
Consider diversifying into funds with a strong performance record. Reviewing quarterly and annual returns can guide your decision on maintaining or switching funds.

2. Consider Actively Managed Funds
Actively managed funds often yield better returns compared to passive funds due to the expertise of fund managers. They can adapt to market changes and take advantage of opportunities.

3. Avoid Direct Funds
Direct funds require active monitoring and investment knowledge. Regular funds managed through a Certified Financial Planner (CFP) provide professional oversight and strategic adjustments, ensuring your portfolio aligns with your goals.

Benefits of Professional Guidance
1. Strategic Asset Allocation
A CFP can help you align your asset allocation with your risk tolerance and retirement goals. They provide a balanced mix of equity, corporate debt, and government securities tailored to your needs.

2. Ongoing Portfolio Management
Continuous monitoring and rebalancing by a CFP ensure your investments stay on track. This professional management adapts to market conditions and personal changes.

3. Maximizing Returns
A CFP's expertise helps in identifying high-performing funds and making informed switches. This proactive approach aims to maximize your retirement corpus.

Final Thoughts
Your current NPS allocation has provided decent returns, but there’s potential for improvement. Evaluating your funds' performance and considering actively managed options can enhance your retirement savings.

With a strategic approach and professional guidance, you can optimize your NPS investments for a secure and comfortable retirement.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

Ans: You and your wife currently hold Rs 1 crore in mutual funds. It’s wise to have this corpus growing for retirement and to consider a Systematic Withdrawal Plan (SWP) after reaching 65.

An SWP from mutual funds can give flexibility, especially if spread across diversified funds. You’ll be able to generate steady income while keeping funds in growth-oriented investments, which could continue compounding.

LIC Policies Evaluation

You have various LIC policies, including Term, Endowment, Jeevan Saral, and Jeevan Anand. Traditional policies like these often carry lower returns, as they focus on insurance rather than investment growth.

Term plans are valuable, as they provide substantial coverage at lower costs. But investment-oriented policies like Endowment and Jeevan plans generally yield low returns, around 4-6%, which may not be ideal for retirement planning.

If these plans have served their purpose for insurance cover, consider surrendering or partially withdrawing them, reinvesting in growth-oriented assets, such as mutual funds, for better wealth accumulation.

Evaluation of HDFC Life Guarantee Wealth Plus Plan
HDFC Life Guarantee Wealth Plus is a structured ULIP plan offering guaranteed income after the premium payment period. However, ULIPs often have high fees and limited growth compared to mutual funds. Also, locking Rs 5 lakh annually for 12 years might affect cash flow flexibility.

Drawbacks of ULIP-Based Plans

High Charges: Premium allocation, policy administration, and fund management fees reduce the net return.

Limited Growth Potential: ULIPs, due to costs, generally underperform compared to mutual funds in terms of returns.

Liquidity Constraints: Premiums are locked for the initial 5 years, limiting early access.

Suggested Approach to Retirement Income Planning
1. Systematic Withdrawal Plan (SWP) for Mutual Funds

A well-planned SWP from a diversified mutual fund corpus provides stable monthly or annual income while allowing capital appreciation.

Mutual funds, particularly those actively managed by professional fund managers, have the potential for inflation-adjusted returns.

2. Investment in Balanced Mutual Funds or Monthly Income Plans (MIPs)

Balanced or hybrid mutual funds can provide regular income and are managed to achieve balanced growth, considering both equity and debt.

MIPs, with a focus on debt and a small equity component, provide monthly or quarterly income options and have tax benefits under the new capital gains tax structure:

For equity, Long Term Capital Gains (LTCG) above Rs 1.25 lakh are taxed at 12.5%.
Short Term Capital Gains (STCG) on debt are taxed as per your income tax slab, while LTCG are also taxed as per your slab.
Ensuring Flexibility and Growth
Avoid ULIP for Retirement

As a retirement plan, ULIPs offer limited flexibility in withdrawals and returns, especially when compared with mutual funds. Since liquidity and growth are vital for retirement, consider avoiding ULIPs like HDFC Life Guarantee Wealth Plus.
Maintain a Balanced Investment Strategy

With a balanced approach across mutual funds and PPF, you can achieve income stability, growth, and low-risk liquidity.
Final Insights
Reviewing your LIC policies for potential reinvestment can yield better retirement outcomes.

Consider structured withdrawals from mutual funds or monthly income plans for sustainable retirement income.

ULIPs may not be the best retirement income option due to high costs and inflexibility.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: Hello;

You can't withdraw NPS corpus at this age.

If you insist for withdrawal then 80% will go into annuity and only 20% will come to you.

But NPS is much better compared to any pension plan of any insurance company.


So continue with NPS is my suggestion.

Best wishes;
X: @mars_invest

Ans: Based on LIC annuity rates in the last three years, Option (i) may provide around Rs. 5,000 – Rs. 5,500 per month for an Rs. 8 lakh corpus at age 40. Exact pension depends on LIC’s prevailing rates. You may check with LIC for the latest annuity rates.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment