The traditional way of planning for retirement is to buy a pension product. Buying a pension product suffers from a few disadvantages. Firstly, most pension products do not take care of inflation post retirement. Secondly, its too concentrated to the avenue it invests into. Thirdly, it lacks the flexibility. A pension plan can be one of the options to plan for your retirement.
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* – We suggest that you look at a diversified set of options to plan for your pension. You could use a set of options that are liquid, and provide stable returns even if they are lower. You could use long term avenues that deliver superior returns as well.
* – We like to use a diversified set of options including debt and equity mutual funds, pension plans, direct equity, PPF, tax free bonds, NPS, etc. One option that I would like to specifically mention is NPS since it is relatively a recent introduction. There are tax benefits when you invest into the NPS which you can take advantage of. It was tax inefficient before and this has been now addressed with withdrawals becoming tax free.
* – As you come closer to retirement, it is important to manage your asset allocation so as to provide for your monthly pension from avenues that are not market linked.
* – You also need to provide for some liquidity to take care of unforeseen expenses.
* – In summary, we suggest that you use a diversified set of options that take care of risk, return, liquidity and taxation. Further, tracking the performance of your portfolio to ensure that you achieve your pension requirement is critical.
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