Pension Commutation is a very personal thing and is to be decided based on your specific circumstances. Nobody can give you a one-size-fits-all solution.
Commutation or no commutation or even percentage of commutation should be decided by what are your future likely requirements and not by just gut feeling or hearsay or just because a friend is commuting or not commuting.
If you're likely to be needing for bulk in future – children's major educational requirements are still pending, children's marriage, house construction or major renovation, need or desire to travel extensively, big loans to be paid off earliest due to your discomfort with large debt when retiring, etc – you may look at commutation. Commutation doesn't have to be either Zero or 50% only – you can commute as you wish between 0 – 50%.
However, if you're likely to need more monthly income rather than bulk, then maybe you do not need commutation or need lesser commutation. In the latter case, you can even commute and invest the bulk amount efficiently to get the monthly income that you need in a more tax-efficient manner
Commutation or no commutation or even percentage of commutation should be decided by what are your future likely requirements and not by just gut feeling or hearsay or just because a friend is commuting or not commuting.
If you're likely to be needing for bulk in future – children's major educational requirements are still pending, children's marriage, house construction or major renovation, need or desire to travel extensively, big loans to be paid off earliest due to your discomfort with large debt when retiring, etc – you may look at commutation. Commutation doesn't have to be either Zero or 50% only – you can commute as you wish between 0 – 50%.
However, if you're likely to need more monthly income rather than bulk, then maybe you do not need commutation or need lesser commutation. In the latter case, you can even commute and invest the bulk amount efficiently to get the monthly income that you need in a more tax-efficient manner
Folklore
• Govt gives you 9 years' worth & takes away 15 years' worth
• Rate of Interest in Commutation Table is so high
• If you invest this 'extra' pension that you will have if you don't commute, you will get save a huge amount of money, much more than what commutation can benefit you with.
Reality
• Be guided by requirements
Require more of bulk
OR Require more of monthly income
OR are Happy and contended
• HBA, AGIF, Banks, we paid interest
Effective rate of Interest = 7.3% less 30% tax = 5.1%
• Next 15 years' (180 months') pension today
• When were you so money prudent that the 'extra' pension will be saved so diligently?
• What if something happens to you?
• Can always commute more within One year if you decide to change your decision
You are commuting for 15 long years. If you commute based on today's rate of interest, you will go entirely wrong.
Interest rates will start moving up within next 3 months, maybe even 2 months. Where does 2 or 3 months stand in view of 15 years of commutation?
Once again, go ahead based on what is your requirement. If do not or cannot take a decision any way, commute say, 20-25%. If you feel the need for further commutation, can commute more within a year of retirement. Cannot go down (ie, decrease commutation %).
However, if you commute say 25% and feel the need for more monthly money (reduced due to commutation), park the bulk and use it to take monthly amount. For this purpose, SWP of mutual funds is the best way to go about.
Interest rates will start moving up within next 3 months, maybe even 2 months. Where does 2 or 3 months stand in view of 15 years of commutation?
Once again, go ahead based on what is your requirement. If do not or cannot take a decision any way, commute say, 20-25%. If you feel the need for further commutation, can commute more within a year of retirement. Cannot go down (ie, decrease commutation %).
However, if you commute say 25% and feel the need for more monthly money (reduced due to commutation), park the bulk and use it to take monthly amount. For this purpose, SWP of mutual funds is the best way to go about.
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