5 Financial Decisions to Make with Your PF and Free Corpus for a Happy Retirement

Here are the five financial decisions you need to make to take home more FP and gratuity plans when you retire.

People tend to rely solely on their monthly pension after retirement to manage their day-to-day financial needs. Often they neglect to make the most of their two lifetime savings – the Employees Provident Fund (EPF) and the gratuity. The capital received from his provident fund and the bonus after retirement is a treasure for those who know how to make good use of it.

If you want to be financially ready for retirement, you need to be careful with your lifetime savings. There are different ways to use and develop your point corpus. Here are the five financial decisions you need to make to take home more FP and gratuity plans when you retire.

a) Let your EPF grow: EPF interest is one of the highest among debt instrument categories at 8.5%. After your last day of work, the amount accumulated in your FPE continues to earn interest for up to 36 months. For example, if your last day is March 31, 2022, you will continue to earn interest for three financial years – FY22, FY23 and FY24 before your EPF account becomes inactive. Since it is compound interest, you will not only earn interest on your principle, but also on the interest earned. Therefore, if you do not need this money immediately, it is advisable to keep the EPF fund inactive to let it grow. After the three-year period, you can withdraw the entire amount, or you can withdraw partially to keep EPF active and allow it to earn interest on the balance.

b) Settle your financial liabilities: Take stock of your financial liabilities, if any. You may have EMIs left over from your home loan, car loan, or other type of debt. Don’t let them continue. Consider using the PF and gratuity corpus to settle unpaid debts, either all at once or through regular advance payments to get rid of your financial debts.

c) Consider low to moderate risk investment products: Depending on your risk appetite, allocate funds to different asset classes. That said, it is prudent not to chase after high-yield products where the risk is very high. Limit yourself to financial products that have very low to moderate risk, preferably debt-focused products. The range of financial instruments you can consider include lump sum investments in postal savings, public provident fund (PPF), balanced benefit schemes offered by mutual funds and mutual fund schemes debt-focused hybrids.

d) Ensure regular cash flows: For regular cash flow, which will be added to your monthly pension, you can choose various options for regular interest payments or dividend payments. Depending on your needs, you can consider monthly or quarterly interest payment options in your Postal Savings. This way, you can continue to earn interest at regular intervals. For example, if you invest a lump sum of Rs 10 lakh for 5 years in the Senior Citizens Saving Scheme (SCSS) – which currently pays 7.4% interest – you receive a quarterly payment of Rs 18,500. That makes a total interest income of Rs 3,70,000 during the 5 years of mandate, and at the end of it, you recover your capital. Similarly, you can opt for the dividend option or add a Systematic Withdrawal Plan (SWP) to your mutual fund investments. All these measures ensure you a regular additional income to meet your financial needs.

e) Create an emergency fund and buy health insurance: It is always advisable to keep an emergency fund ready at all times. After the retreat, make sure you have at least Rs 5 lakh corpus on hand which can be used for any urgent circumstance – a medical emergency or to meet any other unforeseen liability. Keep this money either in a regular bank deposit or in a liquid mutual fund. Since medical event requirements can sometimes be detrimental to your pocket, it is prudent to upgrade to a better medical insurance plan if the existing one is unable to meet your needs. While doing this, consider and review various useful additional features that come with health insurance plans. It’s worth pointing out that medical emergencies can potentially derail your finances; good medical insurance helps protect you against them.

Retirement life has its own challenges. Better thoughtful management of all your assets and savings for life helps you enjoy your life after retirement without any financial hassle. If necessary, you can also seek advice from professional financial planners.

(The author is CEO, Bankbazaar.com)

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