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Ensuring Financial Well Being After Retirement

Planning for retirement is about being disciplined than being safe about managing money, as erring with the final accumulated corpus could lead to imbalance in the onward journey. A retired person can invest in mutual funds in a judicious manner. One need to think beyond the advice saying invest in stocks only. Being extra safe and cautious with the principal could erode the real value of the corpus, given the impact of inflation. Nevertheless, being too adventurous at this stage is also not affordable. Thus the retirement portfolio needs to comprise a mix of fixed income and market-linked investments. All major stock brokers in Mumbai provide the facility of investing in mutual funds and various other financial products which can be used by the retired persons to safeguard their savings and ensure a steady return.

The portfolio needs to strike the right balance between risky assets and less risky ones and that is where mutual funds advisor comes in the picture. For retirees, investments that would help reduce tax liability and provide a regular stream of income is of prime importance since most of the income earned such as pensions, annuities and interest income is, typically, taxable. Moreover, managing the prevailing inflation implication is necessary. It is good to include an appropriate share of equity as it takes care of inflation but only after due evaluation of the ability to take risks.

There is a need to consider a number of factors before deciding on an investment option post retirement. These includecurrent  interest rates, lock-in periods, tax benefits, ease of transaction, flexibility in terms of tenure, inflation- adjustments etc. Investments also depend upon the risk profile and likelihood of the non-earning period of the retiree.

Bank fixed deposits, Post office monthly income scheme, Senior citizen saving scheme, Mutual Funds are some of the viable options of investment for the retired. The current falling interest rate regime makes bank FD’s a little less attractive at the moment and investing in mutual funds is turning a popular choice.

Senior Citizen Savings Scheme (SCSS) and Post Office Monthly Income Scheme (POMIS) give a regular return to maintain household expenses which gives a fixed rate of return. Meanwhile, retirement income would also have to factor in current and expected inflation. So one has an option to allocate a certain percentage into equity mutual funds(MFs) with further diversification across large-cap and balanced funds with some exposure even in monthly income plans, depending on one’s risk profile since equities tend to deliver higher inflation-adjusted returns than other assets.

However, there are times when the retirement corpus is not big enough to last too long. For Eg: Mr Iyer retired as a school teacher and he knew his retirement amount would run out fast. So he took up a contract teaching job that gave him an income sufficient to fulfil his monthly requirements, keeping his retirement corpus untouched. He is investing this additional income in mutual funds via systematic investment plans or SIPs.

At times, early retirement becomes a necessity rather than an option and the road ahead seems uncertain as the savings and investments made are yet to give returns. For Eg: Mr Tiwari had to retire from his job due to sudden medical emergency. He realised that his retirement corpus would soon vanish if he continued meeting his daily expenses at the current living standard of the Tier I city he lived in. So he sold his flat and shifted to a Tier II city. He managed to add a considerable amount to his retirement kitty and his expenses also came down significantly while maintaining his same standard of living. The amount that he saved was used to buy mutual funds offering monthly income.

Last but not the least; the golden years of retirement should be free from stress. The proportion that is put in risk assets should have a protection for times when markets conditions turn bad or interest rates are lowered. The cushioning should serve at least immediate 4-5 years giving a regular and constant income by locking into products that combine safety and good returns such as government-sponsored fixed-income products.

Blog by – Dhruv Ajmera

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