For many retirees, retirement comes with a lump sum amount as the pension fund or Employee Provident Fund is at their disposal. At the same time, if you are the government ex-employee, you are also eligible for regular monthly pensions.

This amount reduces your dependency on retirement fund like PPF, Gratuity or EPF to meet routine expenses. Even if you are an ex-employee of private sector, pension through EPF proceeds could support some part of your monthly income.

Why You Should Invest Your Pension

 

The primary reason to invest the pension amount is to allow your investment portfolio to grow further. In increased life expectancy situations, one is expected to live twenty to thirty years after retirement. Hence, in the absence of proper planning, you can expect certain lifestyle changes with age.

Protection from Inflation

 

If you spend your entire monthly interest income into spending, you are giving up on the chance to grow your portfolio. After a few years, you may not find interest income sufficient to meet your expenses due to inflation. Hence, your original investment may be at the risk of drying out in the long run. To overcome such a situation, it is advisable to re-invest some a portion of pension to protect yourself from inflation.

Build Up Emergency Fund

 

With sound financial planning, you may corner a small amount of pension amount into systematic savings to build a separate fund for emergency purposes. Under such arrangement, your original investment will continue to generate regular interest income as planned earlier.

Build Up Foreign Vacation Fund

 

You may not like to spend your retirement fund directly on expensive foreign vacation. However, after retirement, you may continue to save certain pension amount into the separate account to build a separate fund with a pre-planned goal of an international holiday.

 

How to Re-invest Your Pension

 

Re-investing the pension amount requires careful planning and weighing between different alternatives. Such planning gives you flexibility and growth of your portfolio as well.

Extend your PPF account

 

You can continue your provident fund account even after 15 years of the lock-in period. You can continue to contribute in this account further to grow your corpus. While doing so, make sure you know rules of withdrawals well. You may not be able to withdraw entire amount at your will, once you decide to extend and contribute more amount in PPF.

Open Fixed Deposit

 

You can plan to open a new Fixed Deposit every two or three months, with cumulative maturity options. Such a systematic approach will ensure the growth of your portfolio. At the same time, it will also restart periodic maturity of many FDs with principal and interest. This arrangement will boost your periodic income after certain years. NBFCs offers MAAA rated Fixed Deposits, which provides a higher interest for senior citizens and ensures the safety of your money.

Open Recurring Deposit

 

You can open your Recurring Deposit account with any bank. However, having limited flexibility, you may not find this option very useful. In the case of your savings through pension amount is very small, you can consider this option.

Monitor the progress

Similar to any other investment plan, investing your pension in retirement also needs discipline and proper monitoring. You can also use FD calculator to know maturity amount of these Fixed Deposits. Ultimately, you have to keep a balance between your present requirements and your future needs.

Published by M Yousuf