How to invest your Retirement Money?

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PLANNING for investing one's retirement funds is getting only difficult by every passing year. Gone are the days when retirees could enjoy bank fixed deposits/ post office schemes giving 12-14 per cent returns and inflation at sub 5 per cent levels and retirement was not difficult, at least financially. However, now, with increasing investment options coupled with a decline in the risk-free interest rates and fixed income options, a retired person has to really be careful in deploying his retirement kitty.

Notwithstanding the above dilemma, an important question that retirees are generally bewildered from, is how much of their pension fund (receivable from their employers) should be taken in lump sum and how much as monthly income?

Taxation rules comes in the picture here and counts as a major decision-making factor. Generally, individuals opt to commute (the technical term used to describe the lump sum option) their pension fund to the extent it is tax-free under the income-tax laws and the rest is enjoyed at monthly rests.

But, is this always the correct and the only option? Well, may be not.

If the taxation factor is ignored, the foregoing paragraphs seek to outline some of the advantages that need to be weighed before making the choice between the two.

Advantages of lump sum money: Select your own investment style: Once the lump sum money is received, the individual will have the choice to deploy the funds as per the asset-allocation and risk profile that suits him / her best. The retiree will also have the option to select an investment adviser, whom he trusts and believes would be able to help him balance the portfolio to a suitable mix of risk and reward.

Provision for medical emergencies: A portion of the money could be allocated for any unforeseen medical emergencies, which may not be possible otherwise.

Estate planning: With money in hand, the retiree will have an ample scope to plan the inheritance of the money to his/ her legal heirs. With the help of a suitably drafted will, an individual can allocate his/ her estate properly. Any distribution of his estate for social causes too could be efficiently planned from the available money.

Tax planning: Annuities or the monthly payouts received by an individual are always taxable. However, with the lump sum money, the individual will have the choice to structure his income pattern for tax optimisation. Investments could be planned and executed so as to minimise tax outgo for the retired individual.

Cash flow management: Not all individuals may require a fixed inflow every month. There may be a need to provide for a lump sum outflow at fixed / planned intervals. For example,  an annual trip.

The cash flows required for these planned events could be better forecasted and managed with the lump sum kitty received.

Advantages of regular pension income: Interest rate risk avoided: Most annuity plans available today offer fixed rates for monthly pensions. At these fixed rates, the individual would not be bothered about the interest rate fluctuations and the consequent interest rate risks.

Avoid market related tensions: A lump sum investment would always lure the individual to invest a part of money in the extra returns. However, volatility and uncertainty related to equity market investments may sometimes add to the retired individuals' tensions. Portfolio, not performing according to expectations, may play havoc with the individual's peace of mind.

All these pressures are avoided with the fixed monthly pension.

Pension for spouse: Most annuity plans provide for an option, where in the case of death of the individual, the spouse would continue receiving the pension (same or 50 per cent, as opted for) during his/her lifetime. This would add to the individual's comfort factor knowing that the spouse would be provided for in his/her absence.

Curtailing tendencies to splurge: Many a times, access to funds brings along a tendency to splurge on wants which start seeming like needs. All these tendencies will find no place with the limited monthly income option. Moreover, budgeting for monthly expenses becomes far simpler with the fixed-income option.

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

1. HDFC TaxSaver
2. ICICI Prudential Tax Plan
3. DSP BlackRock Tax Saver Fund
4. Birla Sun Life Tax Relief '96
5. Reliance Tax Saver (ELSS) Fund
6. IDFC Tax Advantage (ELSS) Fund
7. SBI Magnum Tax Gain Scheme 1993
8. Sundaram Tax Saver

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