The public servants (country’s damaad) are treated very differently than how the country’s sons of the soil (farmers and defense personnel) are treated. So all of them have now received a small lump sum from the government. Obviously the first question to ask is what to do with the small bonanza amount.

First of all there are employees who are senior – those who joined the forces before 2004. They now have good salaries and thanks to indexation, they have GREAT pensions. Really great because for this category of employees they only have two things to worry about – children oriented expenses (education, wedding, etc.) and buying a own house. Enough number of builders and government organisations together get them housing at a nice discounted price – you see RBI quarters which people have bought at nicely discounted prices. This category need not worry too much about old age. Was just doing the calculation for a recently retired person…by the time he is 84 years old, he will have a monthly pension of about Rs. 400,000. Sure it is about 24 years later, but surely it will be enough for a couple in their 80s.

So the category of people who are lucky to be in that category should immediately use about half the money to retire the debt. Do not worry about how much of the loan is outstanding etc. just use half the amount to repay the debt. Most of you have all your investments in debt instruments, so start some equity investments. Either you sit and learn about mutual fund investing or invest in an INDEX FUND – literally by any fund house. Look at the asset management charges – it should vary from 0.75% to about 2% – go for the cheapest fund. In case you already have a demat account, go and buy an ETF of the sensex or nifty. SBI / IPRU nifty / sensex funds should be good. In case you do not wish to buy on the stock exchange, go to a fund house and ask for a form. Please go to a fund house and not to a bank…and ask for the form…and fill up as ‘direct’. Put about 1/3rd of he amount that you have received as a bonanza.

Take 1/3rd of the amount and repay your debt – any debt credit card, home loan, personal loan,…whatever just pay it off.

Take 1/3rd and spend it.

What if you are a younger person, invest about HALF THE POST TAX BONANZA and put it in your NPS, PREFERABLY in the second tier account. Then use the balance to repay debt immediately.

The younger people have to worry about retirement also -they do not have the luxury of an indexed pension, so they have to create it himself / herself…

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  1. Dear Subra

    A central Govt employee in Mumbai who gets gross salary of Rs 100000 will get pension of Rs 23000 p.m. which is a pittance. How did you arrive at 400000, Could not make out. Sure, difficult to manage household in this sum, Planning becomes more important. Nice article.

  2. Sarakari Damadon (government’s son in law)will get a bonaza from the tax payers money for doing nothing but guzzling bribes.

    But good to know that the government is moving towards defined contribution pension scheme. Is defined benefit pension true for all the wings of government jobs including Armed forces?

  3. My relative just got retired from BSNL. His last take home salary was around 1 Lac and he told he will get pension around 46000 from now.

  4. Subra ji, I am surprised you have asked them to put in NPS.. do public service employees have any additional benefit of NPS..

  5. i said 400,000 at his age of 84 not on retirement..indexation rocks. NPS is perhaps the only choice for a CG employee – personally I would put it in an index fund..but some of these employees are resistant to non gov schemes.

  6. The retired person at 84 may get 4 lac pm, but its purchasing power then will be equivalent to today’s 40,000. Indexation is good, but in a finite resource environment like the earth, all it will end up doing is having more units each of which are worth less.

  7. even in today’s terms, if you are retired with no worry about kids, have govt sponsored insurance, live in own house, 40K pm is a very comfortable amount to live on.

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