Saturday, June 22, 2019
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Friday, June 21, 2019
Retirement Planning - Article 5 by Amit Sangwan
Article 5
Retirement planning :
SOME CLARIFICATIONS, MINDSET ABOUT MONEY AND MANAGING FEARS
7 min read
12 May 19
By Amit Sangwan
1. Just back to my study after casting my vote. Have been recieving tremendous positive reaction, support and respect after writing my first 4 articles.
2. After having written about NFU and OROP yesterday I was expecting some backlash. But what came from one officer in a message form shocked a mystic like me also.
3. He was extremely annoyed about why I was not supporting NFU(I am not against it.I am against doing RR for it).And he casted doubt that this was a ISI handle. This got me thinking.
4. NFU is an issue which has caused lot of angst and bitter feelings among serving people. Some body like me trying to put cold water is being lamented as dushman and those wanting to increase this fire are perceiving themselves to be deshbhakt. Just fail to understand this skewed logic.
5. This is not an ISI handle. My name and number out there. 800 msgs come to me daily. Just for privacy reasons I want to keep it that way. Accusing this way is bit rude.Labelling as a friendly neighbourhood whatsapp Spiderman would be much better.
6. My aim with all these articles is to offer refreshing take on matters we faujis have been sweating on for yesterday at end. I think its high time we got out of that self eroding and self depricating victim mindset. Also I want to give confidence to people to enter the unchartered territory after retirement.
I will bring in fresh perspectives and clear such vitiated air that has been created of late around this wonderful profession of arms by few starved and perceptually deprived souls.
7. Writing the above complicated english para has taken a toll on my mental faculties. Wont be able to make this article so great now. At end of the day I am an ex Nda Jaat Ram from Rohtak ( settled at Gurgaon).Not from somewhere else as one odd chap may suggest or want to believe.
8. Some random clarification for previous ones
(a) Lumpsum retirement benefits for 20 yr Lt Col retiring Aug 2020 are leave encashment about 20 lakh. Gratuity 20 lakh.
Commutation 45 lakh. Agis survival benefit 10 lakh. So a total 95 lakh. Retirement posting claim 2 lakh. So 97 lakh. Every one year increase in service it will increase by 3 lakhs.So for 24 year service officer it will be 1.1 cr. Rank as brig or full col will increase it by 5 lakhs.
(b) Officers with disability should not commute pension as their pension will be tax free.In
coming times getting 8 percent net of tax returns will be a challenge.
(c) So if you dont have a big outstanding loan to repay, not commuting is an option.
9. Fears
(a) Children education and future
(i) Its a unnecessary worry. Your child is carrying your and wife genes. If both your genes average then at max with great efforts he or she can become above average but certainly not exceptional. This has to be understood.
(ii) Most conventional good jobs like Ias Ips and admission intoIIT etc will be taken by lower middle class. Because of Internet accessibility the class advantage has gone.Please see on youtube , videos of all subjects on civil services exam available. So crores of poor children at almost same level. See the profile of kids joining civil services. Even fauj for that matter. Our children cannot get that fire in the belly.
(iii) Go for unconventional ones. In media, advertising, fashion .will do an article on this later on. Basic idea any work which is dependent on personality and confidence of a person and not academic brilliance.
(iv) Please dont make kids engineer. If not from IIT or NIT or AIT, salary wont be more than 20 thousand.
(b) Question What will i do outside ?
Answer You can afford to do nothing.
As per the equation your living style will be maintained.
Question How can I sit idle?
Answer Then do something.
First question gets repeated again.
This is where people get stuck.Officers with tech skill or some confidence will not ask these questions. Others will have to find answer themselves .
(c) Question - What do i do with money i get on retirement ?
Answer Put in FD
Question But Fd returns are 7 percent only. Post tax 5 percent ?
Answer Ok then put in mutual funds.
Question But they are risky. I have seen nav fall by 30 percent . recently especially mid cap n small cap fund .
Answer Ok bhai invest in real estate.
Question What if builder runs away.So many people stuck in greater noida?
Answer Ok do a small start up of your own or wife .Some artifacts kind.
Queation What if it fails. My life long earnings sunk.
Answer ok i will do portfolio management service for you and hand hold you . We will invest in various asset classes depending on economy cycle, political environment ,crude oil price and trumps state of mind.I will charge 3 percent as fund management fees.
Reaction : It sounds nice.
But 3 percent is too high. You are a friend. Why charge so much for just telling where to put money. How much time it takes to tell a plan ?
I think i will continue because i have 1 cr in PF and will get 8 percent intrest. In fact i will take re employment also.As second posting in that will be choice.
Its ok if i get first one in field.
10. I have witnessed above conversation so many times.
Remember two kind of people will help you and give advise.
One who will charge you money. He will have a vested interest in making you invest in a particular thing. It may be beneficial to you also. Seek good ones.You can ask them any number of questions. Argue with them. After all money is going to them. Develop conviction after the process and go ahead with them.
Second one will give you for free.They are rare good souls to be cherished. They may be friend, may be doing as hobby or it may be there niyati (dont know english word for it).
Dont argue with them. Cross check their advise. Ask how the conviction can be developed. Don't hassle them with endless questions. No one can ever invest on borrowed conviction. You have to develop your own.
Example general perception is that in real estate in India rental yield is 2 to 2.5 percent .
But if i tell you it can be 10 percent .even 12 percent. What will most likely reaction? One of disbelief and followed by unnecessary argument .
11. The problem with faujis is for so long we are used to operating under SOP s and set pattern approbed by higher ups that we become clueless without them. In fauj the commander and system seeks certainity for the mission to be successful whether its surgical strike or corp cdr or army cdr visit.
Nothing is left to chance.There is always a a plan B or plan C. Being in fauj for so long this approach to life has seeped in our subconscious. Also there is a penchant to see orderliness every where.Nearing retirement you need to get rid of this.
12. Above approach to life is very counterproductive in civil world which thrives on uncertainity and cuous. Whole insurance industry is based on it.
Seeking certainity in this uncertain world causes misery.
13. Actionable points for the week
(a) Dont fret about kids education .What they study and end up doing is totally different ? Expose them to various possibilities.
(b) Read book
Art of thinking clearly.
(c) Money cannot give happiness. But its a tool to navigate the troubles of life. Having it certainly helps. Money is important but the way you earn it is even more important. So introspect at what cost are you earning it.
Next one most likely on Mutual funds vs real estate and how to go about it. Also concept of passive income and active income will be introduced. Something if one understands it can change the way you live.
Note
1. In our childhood all of us would have played various games like pittu kho kho kabaddi or r more organised ones like football and cricket.
2. If there was a pool of say 20 kids. 2 kids were nominated as captains. And they used to select teams.There was a toss who will start the selection process.
3. The star and stronger players were selected first. Then the team players or personal favourites. The kids in 8 9 10 number were the ones not fitting the above qualities.
4. As children if we were in 8 9 10 number, understanding the above process was difficult and we continued playing irrespective. Even if some of us had the maturity to understand what was happening, we had a little choice as pool of kids was limited. It was ok to play in cricket when nobody gave you batting or bowling. You did only fielding. And were normally the ones to get ball out of kaante wali jhadi.
5. If the above 8 9 10 is happening to you in adulthood or midlife then Sir its time to change the game.
There is no limit of type of games to be played. Choose a new one of your liking.
6. Know when time is up. For superannuating officers
Sir Bahut din ho gaye democracy ko defend karte huey.
Time to enjoy the democracy now.
7. Hope some value added. Please post queries by whatsapp.also please mention where u belong to because advise to bangalore guy will be different from chandigarh one. Also a brief back ground. Also please dont ask how you should make career choices. Mtech or staff college. I am not that honhaar to guide on these.
Abstract things, intuition and emotions is what i excel.
9911702005
Financial Planning
Another great article by veteran Amit Sangwan! 🙏🏼 🙏🏼
===
Personal financial tips...
What are some of the mistakes of Indians that are destroying their financial lives?
*Buying insurance policies for investment purpose*: Have you invested your money in insurance plan to get a return in future? Big mistake! Out of 100 people I have spoken, 95 have made this mistake.. Very few people understand the difference between term plan, endowment plan, etc.
*Not able to crack the credit card mystery:* Are you paying the minimum amout due on your credit card payment? If yes, you are trapped in credit card mystery. On the other side, very few people really enjoy the benefits like free lounge access, buy one get one movie ticket, etc.
*No idea about the power of compounding:* Everyone has come across the formula of compounding but very few people really understand its power. This is the reason people do not start saving early and hence lose out on the power of compounding. Albert Einstein said that power of compounding is the eighth wonder of the world.
*Buying stocks based on tips without any knowledge:* You will find every Tom, Dick and Harry giving stock tips over Facebook, Whatsapp and TV. Unfortunately, a lot of people fall in a trap of these people and invest money without any knowledge. What is the end result? They lose everything!
*Becoming a victim of lifestyle inflation*: Moving from 2bhk to 3bhk just because you have got a good hike, upgrading your car because you have got some bonus are some of the examples of lifestyle inflation destroying financial lives.
*Buying things just because they are on discount*: From Amazon’s “Great Indian Sale” to Flipkart’s “The Big Billion Days”, everyone is encashing on the weakness of Indians buying things just because it is on discount. Funny thing is now you will find such sales every other month.
*Getting tempted to go for an exotic vacation* just because someone put a post on Facebook and Instagram: Instagram and Facebook are introduced as Social Media Platform but they are actually destroying the entire social fabric. Friends are jealous of each other. Most of them are just social media friends. Facebook and Instagram are more of a marketing platform where people post stuff just to get some likes and companies promote their product and services.
*Spending a bomb on weekend parties:* 5 days work and 2 days party: This is the new culture in India. Pubs are jam-packed on weekends where people would spend a bomb on drinks. By the end of the month, they are left with no money.
*No track of cash flow:* Very few people keep a track of their expenses. Most of them just don’t know where the money is gone.
*No emergency budget:* Not having any extra money in the case of an emergency results in embarrassing situations of borrowing money from friends and relative. Some people even break their investments and make a big mistake.
*No medical insurance*: I have seen people losing out the lifetime savings just because they did not take medical insurance. One accident can shatter all financial dreams. Better be insured. Healthcare cost is rising and it is impossible to manage it without insurance.
*No financial plan:* People do not know why they need to save money because they don’t know their financial goals.
*No diversification*: Some people would invest all their money in real estate, some would invest all the money in gold, some would just keep it in the locker, some would invest all the money in the stock market. Very few people understand the right way of diversifying the investments.
*Spending all the hard earned money on children marriage:* Thanks to our hypocritic society! People save their entire life just to spend all the money on random relatives who only bother about the food and arrangements. What is the topic of discussion at weddings? “Sharma ji ne to unki beti ko car gift kari. (Mr Sharma has gifted a car to his daughter)”. “Mehta ji ne unki beti ko 50 tola sona diya” (Mr Mehta has gifted 500-gram gold to his daughter.)
*Buying excessive gold only to keep it in the locker:* Gold worth lakhs is kept in lockers only to be used once or twice a year. This is resulting in the money getting blocked and hence not getting any returns on it.
*An extremely conservative approach with investment:* Traditionally, people have been risk-averse. They would just have an FD and live on 6–7% annual interest. Some would just keep the cash at home.
*Lack of clarity between asset and liability:* Having a car is not an asset because it consumes fuel and has a maintenance cost. Its price will only depreciate in the future. Car is a necessity but people spend a lot of money and even take the loan to buy a luxury car over and above their budget.
*Considering frugal as cheap:* A lot of people confuse economic spending with being cheap. An economic spender does not compromise with quality but does his research well enough to buy the product or service at the lowest rate.
*Procrastinating investment decisions:* “I will invest from tomorrow”. But the problem is that tomorrow never comes.
*Spending a lot of money on fancy stuff:* A fancy car, a fancy house, a fancy watch, a fancy vacation. People want fancy stuff and willing to pay a premium irrespective of the value it generates.
*Lack of patience:* “I can’t wait for my wealth to grow. I want to double my investments in 6 months. I need to invest in the stock market.” A lot of people lose their lifetime of savings because they don’t have the patience to understand the investment option and would blindly trust anyone with their investment.
*Depending upon others for investment decisions:* “I don’t know anything about investment. Please manage my money.” Unfortunately, a lot of people are dependent upon others with their hard earned money. This is the reason we have a lot of self-proclaimed experts giving stock market tips.
*Not discussing the money matters in the family:* Discussions related to money are considered as a taboo in Indian families. Nobody really discusses money matters.
*Getting too greedy with investment:* People blindly invest their money in penny stocks, day trading, futures and options. They eventually lose all their hard earned money. What is the root cause? GREED.
*Buying stocks at the peak and selling on fall:* Most of the retail investors get over excited with a rising market and invest when the market is at its peak. Eventually, the market corrects and they sell the stocks at a loss.
*Wasting time on unproductive things:* Rather than learning new stuff and growing the skillset, people end up wasting time on social media and YouTube.
*Lack of disciplined investment:* Instead of spending what is left after investing, people invest what is left after spending. This results in indisciplined investment.
*Root Cause:* Lack of knowledge about personal financial management!
Sunday, May 12, 2019
Preparing for PMR - Article 2 by Amit Sangwan
Preparing for PMR - Finiancial Aspects and some more
By Amit Sangwan
1. I write this with some nervousness as the earlier one has recieved overwhelming response. This article is for finiancial orientation of officers who for whatever reasons have opted for PMR. It is on lines of presentations one goes after applying for PMR. It is not meant for the stars. Also it is not meant to motivate officers to leave. Thats a personal call and everybody is presumably mature enough.
2. Now having written what it is not meant to do, I will tell what it intends to do. Give some clarity and confidence to officers who are on verge of retirement for whatever reason they may have taken it for. Give them options. Soothe the nerves and anxiety.
3. This one will require 2nd order thinking and some strain on brain . Please dont read it after you are down two or more pegs. As you wont understand much and and evening may get spoilt.
4. It may hurt or break some long held belief systems .That can cause pain. But may also give you new insights.
5. The money part is most important in this decision making. What I will write is after 20 years one can safely leave with the premise that you will not earn or do work at all.
6. Example is for a Officer leaving on 01 Aug 2020 after 20 years. Why 01 Aug. Because as per me its best date. You have just taken the increment for the year. Settled family 4 months back ie 01 apr for children new session.
7. So example date is 01 Aug 2020 for Lt Col of 20 yrs service. Others may adjust for their rank and service .Template remains same.
8. Salary of Lt Col on 01 Aug 2020 @20 yrs@20 percent DA will be 2 lac rs.it may 10 k more depending on place ,tpt allowance etc.
Take home after tax 158 to 160 k.
After AGIS and some other cutting about 150 k.
I am treating PF subscription as pay only.
9. Practically about 140k to 120 k goes into bank with which you live your life. You pay your bills, fees,emi etc with this.
Not only that you also save part of it into mutual fund sip, cash for buying. So your actual expenditure may vary from 60k to 90k. Somebody may have PF subscription as 50k or 60k. Getting 80k as take home and spending 60 to 70 k. This will depend where you stay and what stage children are at.
10. Some getting HRA would be actually spending that much on rent so that is taken care of. Main takeaway is that it is that 140 k which runs your life.
11. Your Pension after commutation will be 57k on 01 aug 2020. Lumpsum other than your pf will be 1 cr. 10 percent return on this per year is 10 lakh or 83k per month. So you get 57k plus 83 k ie 140k.
Same 140k which was running your life.
12. Now question comes how that 10 percent. Who will give. Is it safe.No you cant get it.This 10 percent thing is a big article in itself (4th one in series). Right now take my word for it. Also remember this all 83k will not come as liquid cash to you per month. Only a part of it. But then go above again . Were you using your entire 140 k? No. So liquid cash required out of 83 k may be just 33k. As 57 k plus 33k ie 90k is sufficient to run a household.
13. So take away till now is that you dont have to fret how you will manage.
I have not taken into consideration what assets you may have, Rental income, Spouse income , Parental support , your own PF. These all are additional security cover.
14. My submission is that ,considering only cash flow , if you take PMR everything remains same.
Now the benefits are following :-
a) When a officer retires at 42 years, his pension gets restored to full after 15 years.ie at 57 years.
b) This way its a gain of 3000 per year till 15 years.your 41 k spread over 15.
c) If an officer retires at 57 years his pension is full at 72 years.If one lives till 80 years you get full for 23 years. In other case it is only 8 yrs.
d) Some will say if you retire later your pension will be more, retirement benefits more than why not continue? Lets do the maths for that also.
(i) Salary increase happening per year is 4.5 percent. Net of tax it is 3 percent. Retirement benefits will increase by 2.5 percent.
It is nett of increase in leave encashment because basic pay and DA has increased. Commutation factor will decrease with age however basic pay has increased so it will still increase but slower rate. Gratuity will peak at 20 lakh. So no gain with service there.
(ii) So from above pension increase is about 2.5 percent of 1 cr lumpsum ie 2.5 lakh and pay increase of 3 percent ie 75 k yearly. So you gain is 3.25 lakh per year if you continue one more year. Now the catch.
(iii) Something called inflation which the government says is 5 percent.But that includes 400 items of common man.Actual affecting us is minimum 7 percent. So if you recieve a crore a year later its worth 93 lakhs.7 lakh loss this way.so nett loss 7 minus 3.25 ie 3.75 lakh or 30 k a month or 1000 rs a day.
(e) All will notice that the way DA is calculated now increase will be less. Lower strata of society will do catch up.
15. So now how do we proceed ahead. From above its clear that finiancially its not that advantageous to stay. So what actually makes us confused, jittery and anxious when the decision time comes.
16. Some psychological reasons as below:-
a) First of all there is some negativity inbuilt in word PMR or PSS .The word premature whether in Premature baby or premature ejaculation is problematic one. Name change to voluntary retirement may help. In this one also retirement word is bad. But better than PMR.
May be BBHG would be better.
b) All our military lives we or say most of us live with a notion that we are superior to civilians. That bloody civilian approach. Now prospect of joining these bloody civilian or working under them will naturally scare your subconscious mind. Some will choose to superannuate and do re employment of 4 years.Fight for all possible causes and then continue the tirade against civilians till death.
c) You can not start a conversation with civilians like when we were at Wellington or when I was commanding that unit. Nobody there is interested in what you were. They cant distinguish between a Army or navy Capt. Your course grading of no use there.
d) Outside your fauji junior may get a better pay package than you. That is also scary. I know people arguing I am full colonel how my pay can be less than Lt Col.
e) You actually dont know what you are worth. Retired fauji known guy unless extremely close will only confuse further not help.
17. Now how we reduce the anxiety. See the reason you are leaving may be that juniors have become senior and you dont want to sir them. But being desperate and joining anything is no solution.There you may end up madaming a 10 year younger IIM female. Please dont judge me here. Just trying to drive home a point.
18. So how to exactly go about selecting what to do after leaving to have a balanced peaceful purposeful life will form core of my next article.
19. Just a hint for what to look in that one.
After leaving fauj dont sell your time to earn. What does that mean is, you sell 40 hrs a week to someone with 15 hrs commute added and he gives you money in exchange. You dont want to live like that having done it 20 to 25 years already. Concept of time millionaire
20. Hope people found this one adding some value.Bottom line is in 20 years you break even. Working there after is following Law of diminishing returns.
Note.
a) Lot of people have shown curiousity in knowing me.
I will like to keep a barrier and not make it personal.
b) For now saying I am one of you may be sufficient. Who I am may not help any. What I have to say may help. So lets concentrate on that.
c) In para 16 (a) above BBHG is Bas Bahut Ho Gaya.
Pls dont make calls. In case of query pls connect only by whatsapp.
I may also not answer any individual query but include most as part in my next one.
This was second in the series. I think it will require minimum 7 to cover all aspects.
9911702005
Sip your Whisky nice & slow
Sip your whiskey,
nice and slow,
No one ever knows
when it’s time to go,
There’ll be no time
to enjoy the glow,
So sip your whiskey
nice and slow.
Life is too short but
feels pretty long,
There’s too much to do and so much going wrong,
Most of the time you struggle to be strong,
Before it’s too late
and it’s time to go,
Sip your whiskey
nice and slow.
Some friends stay,
others go away,
Loved ones are cherished,
but not all will stay,
Kids will grow up
and fly away,
There’s really no saying how things will go,
So sip your whiskey
nice and slow.
Just sip your whiskey
nice and slow..... Have a nice enjoyable weekend.
🍻🍺🥂🥃🍾
Drunk test
*WORDS DIFFICULT TO SAY WHEN DRUNK:*
1. Innovative
2. Preliminary
3. Proliferation
4. Cinnamon
*WORDS THAT ARE VERY DIFFICULT TO SAY WHEN DRUNK:*
1. Specificity
2. Anti-constitutionalistically
3. Passive-aggressive disorder
4. Transubstantiate
*WORDS THAT ARE DOWNRIGHT IMPOSSIBLE TO SAY WHEN DRUNK:*
1. No thanks, I’m married.
2. Nope, no more booze for me!
3. Sorry, but you’re not really my type.
4. No thanks, I’m not hungry.
5. I’m not interested in fighting you.
6. Thank you, but I won’t make any attempt to dance. I have no coordination and would hate to look like a real Fool!
7. Oh no, I must be going home now as I have to work in the morning.
*Words damn easy to say when drunk*
1. I love you.
2. Will you marry me.
3. Tu mera bhai hai, bhai.
4. Kal se daru band.
5. One for the road. Last peg.
*Words to say in the morning.*
1. I was a little high, but in my senses.
2. I think it was nakli whisky.
3. Someone spiked my drink.
4. Starters kam the, is liye....
🍁🍁
Retirement planning - Article 4 - by Amit Sangwan
Article 4
Retirement Planning : NFU, OROP, COMMUTATION and MINDSET ABOUT MONEY
11May 19
BY Amit Sangwan
Disclaimer
I am shifting from the term PMR to a more broadbase one of retirement to include superannuating officers and ssc officers. Also the PMR thing was becoming a bit negative. Having re read my own articles i felt unintentional message of leaving fauj was going.That was never the aim. So I am doing a course correction. Henceforth things will be more factual and academic. How you use it is individual choice. Also read the following with a pragmatic approach because most of it may not sound nice initially.Second read it may will sink in .
1. NFU
(a) Too much unnecessary hue and cry in Fauji circles about this. In civil services one retires at 60 years. Promotion avenues always open there. Not restricted to 3 boards.In armed forces an officer may miss all 3 boards before 40 years of age. So even thinking and comparing with civil services is foolishness.What people want is having missed their Col board they should get General sahab pay because they think in civil its happening that way.
(b) I will attempt to clear it.Not many have attempted before. Great risk of being trolled by your own.
(c) As per NFU ,officers 2 years senior in service automatically get finiancial upgrade when an IAS of particular batch (2 yrs junior) picks a promotion. Like joint secretary at 17 years. So all Gp A at 19 will pick.
(d) But for that you have to be one rank lower. So a Col who has missed all his boards will pick brig nfu when his coursemate has been brig for 2 years.This is how it will come if ever it comes. Similarly a brig will get nfu for major general when his coursemate has been major general for 2 years.
(e) For Lt Col it will be 2 years later so instead of 26 years it will come to 20 or 21 years. Now when their coursemates become brig ,these lt col will not get brig nfu 2 years later because you have to be one rank lower to get next nfu.Not 2.
(f) In civil services that is never an issue because officers are not sealed at a particular rank. Plus residual service is so much invariably slowly they keep rising and most retire at HAG if not HAG plus.
My take on issue is
Do not waste time and energy on this.It comes under gambit of Garib mindset.Something I will delve later on. Its interpretation and implementation not under our control . Time and energy limited .Spend them on thinking bigger things.
2. OROP
(a) Similar lines as above, another energy sucker and hope finisher word.
(b) Orop will not affect post 2016 retirees. A Colonel of 20 years will have basic pay X. Colonel of 32 years service will have basic Y. So whoever retires as Col at 20 yrs his pension will be same as that Col who retired 4 yrs back at same 20 years.Same case for 32 years superannuating ones at 54 years.
(c) So till time , terms of service dont change orop requirement will not kick in. Example now Lt col becomes in 13 years. Earlier TS Lt Col was 21 years. So 8 increments difference created anamoly between pre 2006 and post ones.
(d) Also it needs to be noted that a Col retiring at 54 years will have higher pension than one Col retiring at 20 years because his basic pay is higher by 12 increments. Orop has no role to play in it. So rumour and fear being spread that you will lose out because of orop is wrong.
(e) But 20 years Col is getting 1 cr benefit on retirement. If he continues for 12 more years retirement benefit will be 1.5 cr.But 1 cr of 2019 inflation and growth rate adjusted ( hurdle rate 9 percent) in 2031 will be 2.5 cr . So how do you account for this 1 cr loss. Growing at 8 to 9 percent is not difficult. Also 7th pay commission is last one.Now DA will merge with basic.Factor same for serving and pensioners.
My take is endlessly discussing and being fascinated by Orop not required.Technically there may still exist an anamoly of 2 to 3k between pension because of something called bunching up of pay scale in 7th pay commission . Where in 2 to 3 courses draw same basic. But will you devote your life to it. Remember 2 courses out of 3 would actually gain from it. Only a particular course will lose out. Too much fighting for not understood causes will result in government reducing pension for the 2 courses. No one will gain. Phir atma main sukoon aa jayega. We faujis are masters in doing such stuff.
3. Commutation
Whether to commute or not commute is the question
(a) Instead of a straight forward answer i will list conditions when you should commute. So people can make a choice.
(b) Commutation calculation i have explained in previous article. Basically its loan of 45 lakh for 20 yr lt col for 15 years at 8 percent. Given to government at 8 percent if you dont commute. 8 percent is what you get. Every one more year of servive put amount increases by 2.85 percent ( increment of 3 percent only on basic pay and not on msp.But for pension msp taken)
(c) Commute the pension if
(i) You can grow commuted money more than 8 percent.
(ii) If you have a pending loan of above 15 lakh. If loan is at 9 percent returning it from commuting amount is equivalent of earning 9 percent. Dont think of tax rebate on loan here(its restricted to 60 k only).
(iii) You are emotionally stable and can say no to any relative who wants to take this amount as loan.
(iv) You are sure no impulsive buying will be done by you.
(v) You are sure of picking up a job.If you dont commute that added pension will attract 31 percent tax. Commuted amount does not attract tax . It can be invested in adult kids or wife name. The return on that will not attract much tax.
(vi) You are financially wise. You can invest and earn more than 10 percent.
My take on commutation
If your retirement PF is like 70 to 80 lakhs or more and you dont know how to handle money please don't commute. Because nobody will cheat you of extra 50k per month. But extra 50 lac is a sweet target. If you are below 45 repay loan if any.For senior superannuating guys dont commute.
4. Mindset regarding money
(a) Retirement benefit of 1 to 1.25 cr and a PF of 1 cr is making people jittery.
Reaction is of panic.Like murder ho gaya hai aur laash(this 2 crore corpus) kaise thikane lagayi jaye.
(b) Bas koyi bata de ki kitna FD kitna Mf kitna post office kitna yeh aur kitna woh.
(c) Then we will ask is it safe. Returns 12 percent .R u sure.
(d) We faujis are toughest to give advise to and most demanding. Always skeptical. But despite all this bewakoof bhi sabse pehle and sabse jyaada fauji ka hi banta hai.
Name any ponzi scheme city limousine kinds and sizeable fauji will be there .We just escaped sharda scam because fauj is less in west bengal.
(e) Reason for above mindset is we faujis have victim mindset. That we are somehow missing out on oppurtunities and people in civil have better chances of making money. This fear of missing out (FOMO) makes us commit such mistakes.
(f) Garib mindset
When you train your mind to think of ration money and orop thing or managing guest rooms, then you are restricting it to few thousands. Doesn't help.
(g) We are afraid to take PMR because you dont know your worth outside.
But how will you know what happens outside when in the limited 7 to 10 days when you go on vacation , you want to stay in a fauji set up.Fauji guest room. Why not a 5 star hotel or resort. Hope people dont get offended by this. Just trying to bring a point.If u dont expose yourself n kids to different rich environment ,how will you know how things operate there.
5. Actionable points
(a) Please get out of
Sab Mauj Main Aur Hum Fauj Main mindset.
Self pity never helps.
(b) Dont waste energies on nfu orop and fighting civil servant lobby. We are better than them chant doesnt help.We have a role to play. They have a role to play. Whining constantly will make you feel like a rondumal.
(c) Dont buy cars worth 16 lakh if u ever want to leave early. Its not living life. Will do a small piece on this.
(d) Read book Intelligent Investor by graham.
I will do that 10 percent thing.But after some time.1 month.
Before that certain tools to deal and understand money have to be taught.
My understanding people here not comfortable with thinking about money.1 cr or 2 cr appears to be a lot. This is small amount when you think 20 years hence.
Notes
1. When one does resettlement course at IIM confidence comes. Reason is there they talk in crores. Normally hundred of crores. Refreshing change from speculating whether ration per day should be 97 rs or 207 rs.
2. Phone calls to me have reduced which is a relief. Any doubt in this one you can post a query.
3. If anything written above hurt anybody s sensibilities than i am not sorry as it was intentional. To expose yourself to larger possibilities which life holds.
4. Its ironical that
Baharwale ( civilians) Fauj Main Aane Se Darte Hain (marne ka darr) .
Aur Fauji Bahar Jaane (retirement) Se darte hain (jeene ka darr).
5. People who have the talent and courage to face death should also develop talent and courage to face life.
More on this how to achieve this tangibly in real world in next one.
Pls continue on this journey of trying to live a purposeful life.
9911702005.