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Ways to raise money in emergencies post retirement

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Ways to raise money in emergencies post retirement

 

Having an emergency fund in place covering at least 12-18 months of expenses is usually recommended post retirement. But sometimes, the expense is much higher than what is in the emergency fund. Having sufficient health insurance in place is also highly recommended.

A person's financial life changes completely post retirement. The biggest change is that there is no regular income which hits the bank account on a monthly basis. Another change is that there is a higher instance of expenses, typically characterised by high medical bills. The chance of facing an emergency expense is also high with old age. Having an emergency fund in place covering at least 12-18 months of expenses is usually recommended post retirement. But sometimes, the expense is much higher than what is in the emergency fund. Having sufficient health insurance in place is also highly recommended. Many times, emergencies may not be covered by a health plan- for instance, if there is no hospitalization involved, there is still a high expense. While it is good to plan for emergencies post retirement, there are cases when it becomes necessary to raise money from external sources. Here are some ways to raise money in emergencies post retirement.

 

Loan against Fixed Deposit: If you have a fixed deposit in a bank, then you can borrow against this, to the extent of 80% of the fixed deposit amount. The interest rate charged is 2% above the rate of interest on your fixed deposit. This is an easy mode of raising money with documentation being minimal and the turnaround time on the loan also being quick. However, the loan is required to be re-paid within the tenure of the fixed deposit. Also, the amount you can borrow depends entirely on the amount you have as fixed deposit.

 

Loan against PPF: Another avenue, which can help you raise money in an emergency, is when you borrow against your Public Provident Fund (PPF) balance. Although this comes with conditions, it can be a good option to evaluate. Interest charges are 2% above the PPF interest rate. You can borrow up to 25% of the balance in your account at the end of 2 years before the loan application year. Also, you can take the loan only after 1 year and before 5 years from the end of the initial year of investment. Alternately, if you do not wish to borrow against your PPF, you can withdraw from it. This is allowed after the expiry of 5 years from the end of the first year. Withdrawal amount is restricted to the lower value of the balance at the end of the previous year or 50% of the amount outstanding at the end of the fourth year before the year in which the withdrawal request is given.

 

Personal Loans for senior citizens: Some banks offer personal loans for senior citizens. These can either be variation in interest rates or specific schemes for senior citizens. For example, Bank of India Star Personal Loan scheme offers an interest rate of 3% over the base rate for senior citizens compared to the usual rate of 5% over base rate for other customers. Punjab National Bank has a personal loan scheme for pensioners and ex-employees of the bank. This comes at a rate of 3.25% above base rate for loans less than 3 years with no upfront fees or margin requirements.

 

Reverse Mortgage Scheme: The reverse mortgage scheme was introduced by the Government for senior citizens in 2007-08 wherein senior citizens could unlock the value of their property and earn a regular income. He can mortgage his property with a bank. The bank will value the property, set the interest and tenure of the loan and make payment to the senior citizen. Part of the amount is paid as a lump sum which can be used to meet the emergency need. The remaining amount is paid in the form of annuities. The benefit here is that you can retain ownership of the property and can also continue staying in the property. However, if the borrower permanently moves out of the house or if the last surviving spouse passes away, the bank can sell the property and recover the proceeds.

 

Health EMI: This is specifically for medical emergencies. Hospitals and pharma companies offer a scheme where the buyer can avail a treatment or purchase medicines/medical equipments on an EMI basis. The healthcare provider either ties up with a financial institution which offers a loan for the value of the cost of the treatment or provides an EMI option from its own account. This is then paid off in EMIs. Alternately, in some cases, the facility can be used only if you hold a credit card of the particular bank with which the hospital has a tie up. EMIs are decided depending on the circumstance. Remember that such healthcare loan facility is only available for medical emergencies. Also, this concept is relatively new and not all healthcare facilities offer this. Nevertheless, this is a unique facility which can not only make healthcare affordable, but can also plug the gap of emergency funds.

 

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