People tend to depend only on their monthly pension post retirement to manage day-to-day financial needs. Often, they ignore to make the most out of their two lifelong savings – Employees Provident Fund (EPF) and gratuity. The lump sum received from one’s provident fund and gratuity 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 must pay attention to your lifelong savings. There are various ways by which you can use and grow your one-time corpus. Here are the five financial decisions you must consider to take home a bigger amount of PF and Gratuity schemes at the time of your retirement.
a) Let Your EPF Grow: Interest in EPF is one of the highest among the debt categories of instruments at 8.5%. After your last day at work, the amount accumulated in your EPF continues to earn interest up to 36 months. For instance, 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 turns dormant. Since it is compounding interest, you will not only earn interest on your principle but also on the interest earned. Therefore, if you are not immediately in need of this money, it’s advisable to keep the EPF fund idle to let it grow. After the three-year period, you can withdraw the entire amount, or you may partially withdraw to keep EPF active and let it earn interest on the balance.
b) Settle Your Financial Liabilities: Take stock of your financial liabilities, if any. You may have EMIs left of your home loan, a car loan, or any other kind of debt. Don’t let them carry on. Consider using the PF and gratuity corpus in settling outstanding debts either in one go or through regular pre-payments to get rid of your financial liabilities.
c) Consider Low To Moderate Risk Investment Products: Depending on your risk appetite, allocate funds to different asset classes. Having said that, it is prudent not to chase high-yield products where risk is very high. Confine yourself to financial products which have very low to moderate risk preferably debt-oriented products. The range of financial instruments you may look at include lump sum investments in the Post Office Savings, Public Provident Fund (PPF), balanced advantage schemes offered by mutual funds and debt-oriented hybrid mutual fund schemes.
d) Ensure Regular Cash Flows: For regular cash flows, which will be in addition to your monthly pension, you may choose various options of regular interest payment or dividend payouts. Depending on your need, you could consider monthly or quarterly interest payment options in your Post Office Savings. This way, you can continue earning interest payment at regular intervals. For instance, if you invest a lump sum of Rs 10 lakh for 5 years in the Senior Citizens Saving Scheme (SCSS) – currently fetching 7.4% interest – you receive a quarterly payment of Rs 18,500. This makes the total interest income of Rs 3,70,000 during the 5-year tenure, and at the end of it, you get your principal sum back. Similarly, you may opt for either the dividend option or add use a Systematic Withdrawal Plan (SWP) in your mutual fund investments. All these measures ensure you get regular additional income to address your financial needs.
e) Create Emergency Fund and Buy Health Insurance: It is always advisable to keep an emergency fund ready at any given point of time. Post retirement, ensure you have at least a Rs 5 lakh corpus handy which can be used for any urgent circumstances – a medical emergency or to meet any other unexpected liabilities. Keep this sum either in a regular bank deposit or a liquid mutual fund scheme. Since exigencies related with medical events may at times be damaging to your pocket, it is prudent to shift to a better medical insurance plan if the existing one is unable to cater to your needs. While doing this, consider and review various helpful additional features which come attached with health insurance schemes. It is worth highlighting that medical emergencies can potentially derail your finances; a good medical insurance helps you shield against them.
The retired life has its own challenges. A better and thoughtful management of all your assets and life-long savings helps you enjoy your life after retirement without any financial hassles. If need be, you may also seek some advice from professional financial planners.
(The author is CEO, Bankbazaar.com)