Skip to main content

Financial planning for retirement: Plan your Sunset years

People usually underestimate how much they need and over-estimate how much they have. This blog post explains why this is more important while financial planning for retirement
IF RETIREMENT planning is crucial to providing you and your loved ones a secure future, the same holds true for post-retirement planning as well. Particularly if you don’t want to run out of money in the sunset years, even while maintaining a comfortable standard of living when you are no longer earning.

The ultra-high standards of living that people achieve today using credit cards and other types of credit are based on the assumption that they will have an unlimited future during which they’ll tighten their belts and pay all the borrowed money back. Unfortunately, people can’t carry this lifestyle into retirement unless they become rich, and that’s unlikely.

Post-retirement planning, thus, acquires added importance because people usually under-estimate how much they need and over-estimate how much they have. For instance, people assume that after paying out their housing and other mortgages, their monthly expenses will reduce over time, but they forget that healthcare expenses are bound to rise as they become older.

There are other complexities too. For example, people today generally live longer and spend more years in retirement. They, therefore, need to save as well as protect their savings, more to cover the risk of living longer than their life expectancy. Traditionally, retirees moved most of their assets into investments that provided a fixed income. But many of today’s retirees need to invest for growth as well as income, so that their assets will continue to support them long into the future.

Moreover, as people are healthier and love pursuing new interests even in golden years, such as vacationing abroad and playing golf, their post-retirement lifestyles are not bound to be less extravagant than those prior to retiring. Therefore, investors many a times are faced with the issue of looking beyond those financial plans which assume that one’s post-retirement expenses would always be lower. Also, there are issues concerning financial responsibilities in the event of disability or impairments and the eventual distribution of assets to beneficiaries.

Start here. You need to know how to plan for your post-retirement life. Post-retirement financial planning can be a continuation of retirement planning or an independent financial planning exercise in itself.

In the first case, one needs to review the plan immediately after retirement and thereafter regularly. Your post-retirement financial plan should begin with the basics: net worth, income and expenses. Analysing these three factors will help you determine how long your assets will last at various rates of investment return, inflation, and spending.

Post-retirement financial planning, however, is taken independently when one doesn’t have a retirement plan. However, while in the case of retirement planning the focus is on achieving growth, in post-retirement financial planning the focus is on generating income as well as achieving growth. Since the retiree depends on the income from investments, managing cash flows becomes paramount.

Three important criteria to be considered while choosing a post-retirement investment avenue are:

  • Safety,
  • Rate of return and
  • Liquidity.

Since most retirees have a fixed corpus and earnings, safety of these becomes very important. But the rate of return that an investment offers is also important as retirees depend on these returns for their income and most retirees prefer to have easy-to-liquidate investments to meet the regular and unforeseen expenditures.

Post-retirement, a person does not have his monthly paycheck and will have to depend on the annuity he receives from his investment corpus. Therefore, this corpus is the most critical to his survival. Financial planning, therefore, has to be done in earlier stages of life so that the person will have adequate money to suit his lifestyle. This only changes the way he is going to manage his money.

Unfortunately, however, there are very few investment avenues available today which meet the three criteria of safety, rate of return and liquidity. Safe investments offer low returns or come with a ‘lock-in’. Higher returns, on the other hand, come with relatively higher risks. It is, therefore, important to allocate the corpus intelligently so that near-term needs can be met with low-return yielding liquid investments and part corpus can be invested in ‘lock-ins’ or riskier investments. Also, apart from the regular investment options such as post office deposits, senior citizen bonds and RBI bonds, there are some varieties of mutual funds — Liquid Plus Funds, Arbitrage Funds — which can be considered.

The amount of risk a person takes, however, should be based his profile. For instance, if there is a large gap between the returns needed and the returns earned, equity exposure might become a necessity. However, once invested, investments should be monitored regularly and action taken, if necessary.

Also, since post-retirement many people are left with no other choice but only to control their expenses, it would also help them a lot if instead of finding a huge nest egg, they could simply find a retirement lifestyle that fits their budget!

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now