Retirement Fund Choices

I told my client that her PF (8.25%) can beat her equity (16%). She thought it’s not possible—until she saw the math. Yes, your PF which generates 8.25% returns, can beat an investment that gives 16%, say equity. I know it’s difficult to digest, but let me decode it for you. Every month, you contribute 12% of your basic salary towards PF. • Your employer matches that with another 12% • The best part: your employer’s contribution is not taxable in your hands, even under the new tax regime. That’s a direct tax saving most people ignore. Let’s put numbers: • Suppose your basic salary = ₹1 lakh • Your PF contribution = ₹12,000 • Employer adds = ₹12,000 (tax-free for you) • Total PF inflow = ₹24,000 per month Now compare with equity: • Your friend has not opted for EPF and instead invests in equity • Effectively, he can only invest ~₹20,256 (after tax) instead of ₹24,000 After 5 years: • PF corpus = ₹17.75 lakh • Equity corpus (11% CAGR, post-tax) = ₹15.75 lakh Even though equity gave higher “returns”, PF still beat it — purely because of the tax edge. PF also enjoys the rare EEE status: ✅ Exempt on contribution (employer contribution in both regimes, employee contribution in old regime) ✅ Exempt on growth (interest is tax-free) ✅ Exempt on withdrawal (after 5 years of service) For equity to actually beat PF, it needs to deliver: • 16% CAGR over 5 years (to reach ₹17.75 lakh in 5 years with ₹20,256 per month, you need 16% CAGR) • 12.3% CAGR over 10 years • 11% CAGR over 15 years • 10.35% CAGR over 20 years So, especially if you’re in the later stages of your career, don’t ignore PF. It’s a stable, no-risk compounding machine that silently builds wealth while saving you tax. 👉 I’m not saying ignore equity. In the long term, equity can beat PF. But PF is the best debt investment you can ever make. 📩 I covered this in more detail in last week’s newsletter with examples. If you liked this post, you’ll enjoy future editions too — subscribe via the link in the comments. 🔁 And if you found this useful, hit Reshare so more people can understand this maths.

Retirement savers are getting a boost in 2026. The IRS just raised contribution limits, giving workers a little more room to build long-term security. Here’s the quick rundown: 🔹 Workplace plans (401(k), 403(b), 457) – New limit: $24,500 – Catch-up for 50+: $8,000 – Catch-up for ages 60–63: $11,250 🔹 IRAs – New limit: $7,500 – Catch-up: $1,100 These increases help your savings keep pace with inflation… but only about 14% of people actually max out their plans. One key update: if you earn more than $150,000 in 2025, your catch-up contributions must go into a Roth account — no upfront tax break, but tax-free withdrawals in retirement. If your employer offers a match, make sure you’re taking full advantage. And if you’re thinking about increasing your contributions for next year, these new limits give you more room to work with.

Going forward, the NPS will look completely different! 🚶♀️➡️🧓 Under its new chairman, Sivasubramanian Ramann, the regulator is shaking things up: New kinds of schemes are getting launched & there is a proposal to reduce annuities from 40% to 20% on exit. Unlike before, NPS subscribers will be able to hold multiple schemes in their account. Think of the new schemes as similar to MFs, which you can hold as many of them as you want. Just that it'll be focused on retirement planning and focus based on demographics, income level, persona, occupation, etc! For such schemes, there's a 15-year vesting period, which simply means if you're 30, then your money is locked in till 45. This is better than the current NPS schemes, which allow exit only after age 60. The new schemes will be allowed from Oct 1st, and the existing scheme will be called 'common schemes.' Both are separate types of NPS schemes and the new schemes will only be available for non-government subscribers. There are also other proposals, like reducing the mandatory annuitization from 40% to 20% on exit. They are also proposing to allow greater and more partial withdrawals. The pension regulator seems to be relaxing the rigidity of the NPS. But with the new changes, NPS might no longer be the plan vanilla retirement system it used to be. With more choices, investors need to be more proactive and choose schemes wisely. Read: https://lnkd.in/d48KWZ48

They invested in Apple before the iPhone existed. They've invested in Islamic Finance Guru. Now they manage nearly $10bn as the West's largest Islamic asset manager. Saturna Capital doesn't make noise. They make money. I recently visited their offices in Bellingham, Washington State (they're shareholders in Islamic Finance Guru). What I discovered was a masterclass in quiet excellence. Four things set them apart: 1. Ruthless focus. They do value investing for long-term growth in public markets. That's it. No crypto ventures. No side hustles. No FOMO-driven pivots. Just deep, patient, analytical investing. 2. They move like a startup. For a $10bn manager, they're surprisingly nimble. New trend emerges? They're already analyzing it while others are still scheduling meetings about meetings. 3. Nobody leaves. The team is sticky, well-incentivised, and loyal. When your receptionist has been there 15 years and your analysts turn down Silicon Valley offers, you know the culture is special. 4. They still hustle. After decades at the top, you'd expect cruise control. Instead, the team is constantly travelling, meeting companies, turning over rocks. Success hasn't made them soft. This is what struck me most: They've been doing halal investing since before it was a hashtag. No compromise. Just world-class performance that happens to be Shariah-compliant. While everyone else is trying to be the "Uber of Islamic Finance," Saturna just quietly compounds wealth for Muslim families globally. Sometimes the best strategy isn't disruption. It's excellence, repeated daily, for decades. P.S. The Bellingham views alone are worth the visit!

Met with a VC General Partner recently who was struggling to close their next fund (Fund III). They were frustrated that LPs (investors) were ghosting them. But here’s the catch: their DPI (cash returns) on Fund I and II was near zero. So, I asked: 🔹 If you had already returned 1x capital to your LPs, would you be struggling to raise this fund? 🔹 The answer: no. We broke it down together: How many of your portfolio companies are actually planning an IPO in the next 12 months? (Likely none). • If, in six months, you utilise a secondary sale or a continuation fund to return actual cash to your investors, you’ll be in a much stronger position to ask for more capital. • You’ll have proof of liquidity, not just "paper marks." Then I asked: 🔹 What have you done to actively manage your exits via the secondary market to justify a re-up? 🔹 The answer: nothing. Here’s the reality: 💡 The era of raising solely on TVPI (paper value) is over. If you want to command capital in this liquidity-constrained environment, you need to show you know how to exit, not just how to invest. 💡 Demonstrate your ability to return cash. Don’t just expect LPs to re-invest because your logo is on a hot cap table. Sometimes, the right move is to pause the roadshow, structure a secondary transaction for your best assets, and focus on getting your LPs paid first. We work with the industry's best funds and help structure liquidity solutions when they are needed. But it’s about generating DPI, demonstrating discipline, and respecting LPs' need for cash, not just gathering AUM. For some GPs, launching the next vintage isn’t the answer yet. Sometimes, managing the existing portfolio and proving you can exit is the best next step.

Thinking Out of the Box: Let me start with my conclusion and then explain my logic. Given the recent increase in funded status for Public Pension plans, it is my humble opinion that public plans are over-allocated to public/private equity. The average pension plan has ~60% exposure to public/private equities. Public plans actuarial return requirement has fallen to ~6%, the rate required to fulfill their pension distributions, while yields have risen and private credit has become a more optimal solution. Let’s unpack/debate 3 key points: 1. If a pension plan has a 6% return requirement and Private Credit can deliver 11-12% consistently year-after-year, then why not flip the script, and have 50% in Private Credit, and 10% multi-asset public credit to meet liquidity requirements - not 60% allocation to equities. Private Credit has evolved, it’s a defined asset class (prior to 2010 it was not). Muscle memory dictates that equities is the way to tilt for success. 2. Shockingly, the S&P 500 has compounded only +5% IRR per annum since January 1, 2000, a much lower than most think since it has generated a 20%+ IRR in 2023/24. There has been only 2 other times in past 100 years when equities had back-to-back 20%+ annual returns. As we close in on the first 1/4 of this century, equities have delivered a mere 5% annually. Traditional PE (top-quartile) has done well, while growth/venture have under-performed PE, except for the top 10% of this cohort. While I remain constructive for equities, one can argue that equities are rich—see chart below, while the bigger point is that fixed income is a better match v. fixed liabilities. 3. Insurance companies are highly regulated by the NAIC/state commissioner who require insurers to invest in fixed income to match asset vs. liabilities. In recent years, insurance companies have begun to invest more heavily in private credit given the meaningful yield pick-up vs. public fixed income. Led by the brilliant minds at Athene, other insurers have adopted this model of leaning into private credit. Insurance companies can allocate ~15% to private credit, only limited by the capital requirement imposed by regulators. Pension plans do not have this constraint and have significantly greater flexibility. In contrast, insurance companies also have liabilities to fulfill, yet they have just ~5% equity market exposure (percent of assets held by general account). Given the volatility of equities vs. the higher-for-longer return profile for private credit, capital allocators may want to consider these 3 key points (above). Public pension funds have an amazing model, staffed by brilliant CIOs with their strong investment staff(s). Partnering with their consulting firms, plan sponsors have a chance to flip this model, increasing the allocation to private credit that may be a better match vs. their liabilities. Is it time to rebalance?

This govt policy change can make you richer than most mutual funds. The rules of NPS (National Pension Scheme) were updated recently. These 4 new features make it stronger, cheaper and more flexible for anyone building long term money. 1️⃣ Full equity option - You can now put 100% of your NPS money in equity. - Earlier it was capped at 75%. - This matters because someone in their 20s now gets decades of equity compounding along with tax benefits in both tax regimes. 2️⃣ Lock in finally reduced - The lock in is now 15 years instead of waiting till 60. - This gives people the freedom to use their money for real goals like a home, kids’ education or even a career break. - It makes NPS practical, not just a retirement box. 3️⃣ Multiple schemes in one account - Earlier you picked one scheme and were stuck with it. - Now you can hold multiple products inside the same NPS. - It works like building a small portfolio with aggressive, balanced or conservative choices. 4️⃣ Fees increased but still very low - Charges moved from 0.09% to 0.30%. - But mutual funds usually charge 1 to 2%, and even direct plans start around 0.5 to 1%. - Over 30 years, this gap can add up to lakhs because lower costs support compounding. 5️⃣ Proposed changes (not confirmed yet) - Annuity requirements may drop from 40% to 20%. - Investment age might extend from 75 to 85. Both of these can push long term compounding even higher. Which change feels most useful to you? #GovernmentScheme #WealthBuilding

Most people see a down market and worry about their retirement But sometimes a falling market could create a tax planning window. Here’s why. First, a quick refresher on Traditional IRAs Many people end up with a Traditional IRA after rolling over an old 401(k). The key features: • Contributions are pre-tax • Growth is tax-deferred • Withdrawals are taxed as ordinary income That means Uncle Sam gets paid later. But there’s a strategy that can change that. Enter: The Roth Conversion A Roth Conversion moves money from a pre-tax account (Traditional IRA) to a post-tax account (Roth IRA). You pay taxes on the amount converted today. In exchange: • Future growth can become tax-free • Withdrawals in retirement can be tax-free • No early withdrawal penalty applies to the conversion itself The goal is simple: Pay taxes now to potentially reduce taxes later. Now here’s where down markets get interesting. Let’s say Bob has: $100,000 in a Traditional IRA. Bob considers converting half. Normally that would mean converting: $50,000 → and paying taxes on $50,000. But then the market drops. Bob’s IRA falls from $100,000 to $50,000. Now when he converts half, he converts: $25,000 instead of $50,000. Meaning: • Smaller conversion • Smaller tax bill But here’s the interesting part. If the market later rebounds back to $100,000 total: Bob could end up with: • $50,000 in a Traditional IRA • $50,000 in a Roth IRA Same overall balance. Except now half of the money sits in a tax-free account. That’s the hidden opportunity. A down market can allow you to: Convert more shares While paying taxes on less money. But there’s a catch. Roth conversions are taxable income. So before doing this, you need to consider: • Do you have cash available to pay the tax? • Are your current tax rates lower than future tax rates? • Will the conversion push you into a higher bracket? Because sometimes the best move is not converting. The real takeaway Market declines feel painful. But sometimes they open up planning opportunities. One of the biggest: Paying taxes on a temporarily lower portfolio value. For the right person, in the right tax situation, that can create meaningful tax-free wealth later. Not tax advice. Just an example of how strategy can sometimes turn volatility into opportunity.

The WSJ's editorial this morning was very positive on private market assets in 401k's. What's actually happening with retirement plans, and what are the risks/trade-offs to know? Last August, the President signed an executive order pushing government agencies to "democratize" alternatives. That opened the door for private assets like private equity, private credit, real estate, and crypto in 401k retirement plans. Last week, the Department of Labor published proposed regulation that brings this one step closer to reality. Why does this matter? 1️⃣ Alternatives have historically earned higher returns. Over the past 20 years, private equity has annualized ~14% vs. ~10% for public equities. 2️⃣ Low correlation to stocks & bonds can reduce portfolio volatility over time. Real estate, for example, has been used in retirement plans for decades to smoothen returns. 3️⃣ Access to more opportunities. Public markets are getting more concentrated and expensive — there are fewer public companies today than in the 1990s, and some of the most exciting companies may stay private for a long time (or forever). But there are real trade-offs: ⚠️ Alternatives are illiquid. You can't sell a portfolio of properties in a matter of days. It takes careful planning to maximize returns. ⚠️ Private assets are complex. They require specialized diligence and research. There is a big gap between the top performing managers and the bottom-performing managers. ⚠️ Some alternatives, like gold or crypto, can be highly volatile and probably shouldn't make up a large share of your portfolio. In many ways, retirement plans might actually be the ideal home for alternatives. For long term illiquid assets, the investment timeline matches well. People naturally avoid dipping into their 401k's until retirement because of the withdrawal penalty. Most public and private pension plans use alternatives today. So how do you manage the trade-offs for everyday investors? ✅ Target Date Funds (or "Glide Path" strategies) — these shift the burden of planning and research onto the asset manager, so individuals can "set it and forget it." You decide when you plan to retire and what your risk tolerance is, and the fund invests in a mix of stocks, bonds, and alternatives targeting your goals. ✅ Modest allocations to alternatives: enough to move the needle on better returns and lower volatility, but not so much that illiquidity becomes a challenge. ✅ Investor education. Incredibly, there are still savers who are not availing of 401k matches and maximizing their contributions. The opportunity set is getting larger, so we have a lot to do to make sure investors know what tools they have and how to use them. Lots happening in this space — I plan to put out a video and more content as things evolve! 🎬 👇 Follow the Guide to Alternatives for more on private markets, alternatives, and retirement investing. #alternatives #markets #401k #retirement #privatemarkets #investing

Most high-income professionals overpay in taxes not by a little, but by hundreds of thousands of dollars. And the worst part? Most of them don’t even realize it’s happening I recently worked with an executive who was unknowingly missing out on over $500,000 in potential tax savings. Like many high-income professionals, she assumed her CPA was handling everything. But here’s the problem: 🚫 Most CPAs think backwards, not forwards. They file taxes based on what already happened. 🚫 They don’t integrate financial planning, investments, and tax strategy. 🚫 Some of them miss opportunities that can save you money long-term. How We Fixed It & Saved Her Over $500K ✅ 1. The HSA Strategy – $20K+ in Lifetime Tax Savings She had access to an HSA (Health Savings Account) but wasn’t using it. Why does this matter? 👉🏾HSA contributions are tax-deductible. 👉🏾The money grows tax-free. 👉🏾Withdrawals for medical expenses are tax-free. By fully funding it every year, she’ll save $20,000+ in taxes over her lifetime. But here’s the kicker: we also helped her invest it properly so the account grows instead of just sitting in cash. ✅ 2. The Roth Conversion Strategy – $500K+ in Tax-Free Growth She was anticipating losing her job and had multiple old retirement accounts just sitting there. Instead of letting those accounts stagnate, we saw an opportunity: 👉🏾She was having a low-income year, which meant she could convert $100,000 into a Roth IRA at a lower tax rate. 👉🏾That $100K will now grow tax-free—meaning if it reaches $600K or $700K in retirement, she’ll never pay a cent in taxes on that money. ✅ 3. The Bonus Strategy – Tax-Loss Harvesting We also helped her offset investment gains using tax-loss harvesting, a strategy that allows you to sell underperforming investments and use the losses to reduce your tax bill. By combining these strategies, we helped her: 💰 Save $20K+ in taxes on HSA contributions 💰 Unlock $500K+ of future tax-free income through Roth conversions 💰 Offset capital gains and lower her tax bill through tax-loss harvesting And she almost missed out on all of this because she assumed her CPA was handling everything. If you’re making multiple six figures, but you aren’t actively planning your tax strategy, you’re leaving money on the table plain and simple. The best financial strategies aren’t about making more money they’re about keeping more of what you earn. If you want to see where you might be overpaying, shoot me a message. Let’s make sure you’re taking advantage of every opportunity. P.S See the look on my face…don’t make me have to give you that look because you’re paying more than your fair share in taxes. 😂