Retirement planning: My mother can increase her pension by depositing Rs 7.2 lakhs to EPFO. Currently, she is projected to receive around Rs 3,000 rupees in monthly pension once she reaches 58 years old (currently 57). By making this deposit, she would be eligible to receive a total monthly pension of Rs 15,000, resulting in an additional Rs 12,000 per month for life at the cost of the non-returnable deposit.
Based on my calculations, it would take approximately 6-7 years to recoup the deposited amount if it had been invested in a fixed deposit instead. Do you believe this is a wise choice to pursue?
Advice by Akhil Rathi, Senior Vice President, Financial Concierge at 1 Finance
This decision depends on your mother’s financial situation, risk appetite, and long- or short-term goals. Let’s break it down:
If she opts for the EPFO pension, depositing Rs 7.2 lakhs will provide her with an additional Rs 12,000 per month for life. She will recover her investment in about 5–6 years, after which it becomes a source of pure profit.
The pension ensures financial security and eliminates market risk, making it an excellent choice for those seeking a stable, guaranteed income. Given the increasing life expectancy of 70–75 years, this option offers long-term benefits without requiring active financial management.
On the other hand, investing Rs 7.2 lakhs in a Senior Citizen Fixed Deposit (FD) at 7.5% to 8.5% for five years would generate around Rs 3.23–3.76 lakhs in interest while keeping the principal intact.
An FD provides liquidity and flexibility, making it suitable if she anticipates emergency financial needs. Alternatives like the Senior Citizen Savings Scheme (SCSS) or RBI Floating Rate Bonds can also offer stable returns while maintaining some degree of accessibility.
For a well-balanced approach, she could consider allocating a small portion — say 5-10% — of her funds to high-risk, high-return instruments like mutual funds as compared to safe investment products. While this involves some volatility, a diversified approach ensures that she benefits from potential market upside while keeping the majority of her money in safe investments. If she is comfortable with some calculated risk, this strategy could help her combat inflation and improve long-term returns without compromising financial security.
Mutual funds for senior citizens
Enhanced Risk Management: Mutual funds enable investors to combine their resources, which are then overseen by professional managers.
By diversifying investments across a range of assets like stocks, bonds, and real estate, risk is minimized.
Tax Efficiency: Certain mutual funds offer tax benefits according to Section 80C of the Income Tax Act, making them an appealing choice for older individuals seeking to optimize returns and minimise tax obligations.
Professional Oversight: For many older individuals, managing investments can be time-consuming and complex. Mutual funds are overseen by seasoned fund managers who analyze market trends and make skilled decisions on behalf of investors.
Increased Liquidity: Mutual funds offer seniors the ability to quickly access their funds compared to other investment options like fixed deposits or real estate, providing greater flexibility.
Income Generation Opportunities: Certain mutual funds, such as equity income funds or balanced funds, can deliver regular dividends, making them appealing to seniors seeking a steady income in retirement.
Things to note
Risk Assessment: Seniors are encouraged to evaluate their risk tolerance and select funds that are in line with their financial objectives and comfort levels.
Investment Time Frame: The investment horizon for seniors can differ, making it crucial to select funds that align with their time frame and liquidity requirements.
Seeking Guidance from Financial Advisors: It is recommended that seniors seek advice from financial advisors in order to create a customized portfolio that suits their individual circumstances.