Skip to main content

Steady Cash Flow after Retirement

 

As a retiree, you may worry over the possibility of outliving your investments. This is called longevity risk. Here we discuss how to moderate your longevity risk.

Your post-retirement spending comprises living expenses, leisure and health care costs. Your retirement income portfolio should generate sufficient cash flows to fund these expenses. Risks, post-retirement, can arise due to several reasons. One, return on your investments is lower than the inflation rate. So, every year, you consume more money than you earn.

Two, you incur higher-than-projected expenses during your retired life. This can be due to your changing lifestyle. Occasionally, you may also want to help your children with their expenses. And three, your investment account suffers capital loss due to a market crash.

So, how can you moderate the longevity risk? You can buy a lifetime joint annuity from an insurance company. Then you or your spouse will receive fixed cash flows every month till either of you live. But you may not prefer an annuity because it carries lower yield than fixed deposit rates. You can instead moderate longevity risk by managing withdrawals from your retirement income portfolio.

To start with, do not stress your portfolio with additional cash withdrawals. And when the stock market is down, you should, if possible, consume only interest income from your bank deposits and hold on to your equity investments. But how will you meet your regular and occasional expenses?

Two-tiered approach

You should adopt a two-tiered approach to moderate your longevity risk.

First, create an emergency fund in addition to your retirement income portfolio. This fund should have at least one year's living expenses and carry liquid assets with zero tolerance to nominal capital loss.

You do not require large capital to create this fund. Why? You would have carried an emergency fund through your working life equal to at least six times your living expenses. As your living expenses would be lower in retirement, a factor of 12 may not require you to contribute too much additional capital at retirement.

You can use this fund for occasional cash flow needs or to pay for your living expenses when the stock market is down.

Two, you should monetise your home equity on your self-occupied mortgage-free house. You can do this by taking a reverse mortgage or using a reverse mortgage line of credit. If you take a reverse mortgage, the bank will pay you a sum of money every month for 20 years based on the value of your house.

During this period, you can supplement your cash flow requirement by withdrawing interest income and dividends from your retirement income portfolio. After 20 years, you can depend entirely on your retirement income portfolio to support your lifestyle requirement. That way, your portfolio will last longer and moderate your longevity risk.

In a reverse mortgage line of credit, you enter into an agreement with the bank to access bank funds within a certain period, but only when required.

If you need additional cash that your retirement income portfolio cannot support, you can draw from this line of credit. You can learn more about reverse mortgage from the National Housing Bank's website.

Typically, reverse mortgage is recommended for retirees owning large self-occupied houses but do not have enough money in their portfolios to sustain their post-retirement lifestyle.

-----------------------------------------------
Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saving Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 Tax Saver Mutual Funds Online

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

-----------------------------------------------

Popular posts from this blog

Mutual Fund Review: Taurus Tax Shield

    Taurus Tax Shield has seen a turnaround in performance since 2007, but still remains a volatile offering… The fund has seen a turnaround in its performance since 2007 and has delivered impressively during market rallies since then. The portfolio is also more diversified. It contained its downfall to an average level in 2008 but is still one of the most volatile offerings in this category. Bold investors can look at this fund.   Strategy The fund manager invests across the market capitalisation and sectors. The selection of stocks is made on the basis of long-term business prospects and value creation. Fund Insight Launched in March 1996, the fund was a laggard with just two annual outperformances. Concentrated stock bets and high exposure to mid and small caps led to it being hit harder during market downturns. The number of stocks in the portfolio never exceeded 20 and it was not rare to see the top 5 holdings account for around 60 per cent of the portfolio. After b...
Read more

AXIS Long Term Equity Fund - The Best Tax Saver Fund for 2016

  AXIS Long Term Equity Fund - Invest Online   History:   The open ended mutual fund was launched on December 21 in the year 2009. It is benchmarked against BSE 200 and managed by the fund manager JINESH GOPANI. Initially the scheme was called as Axis tax saver fund but later it was renamed as Axis long term equity fund with effect from September 2, 2011. Nature of investment: As far as asset allocation is concerned, 97.52% of the stocks are equity and 0.02% is debt based. The primary focus of the fund is to invest in diversified equity stocks that have higher growth potential. Total asset size of the fund is in the tune of 4,996 CRORE as of June 30, 2015. Performance: The performance of the fund for one year, 3 years and 5 years are 23.6%, 29.9% and 19.1 respectively which are far greater than 6.4%, 14% and 5.6% benchmark figures. It has also preformed fairly well against SBI magnum Tax Gain (G) and HDFC tax saver (G). The growth comparison is enumerated below;                        ...
Read more

10 year NSC launched, all set to give 8.7 per cent

Invest in Mutual Funds Online Download Mutual Fund Application Forms THE government introduced a 10-year National Savings Certificate ( NSC ), which will earn an interest rate of 8.7 per cent per annum. The notification for the launch of the new savings instrument, 10-year National Savings Certificate (IX-Issue), 2011, has been issued, an official statement said. The scheme will come into effect from December 1, it added. Investments in NSC will earn interest at the rate of 8.7 per cent compounded semi-annually, it said, adding that on an investment of Rs 100, the depositor will get Rs 234.35 on maturity of the NSC. There is no upper limit for investment in the certificate, it added. The new scheme will give better returns along with tax benefit to savers. At present, the maturity period of NSC is six years and it qualifies for tax relief for investment up to Rs 1,00,000 under Section 80C. The decision to raise the maturity period of NSC has been taken on the b...
Read more

Health insurance guide - Part I

Insurance, by definition, is morbid. What if I die suddenly? What if my home caught fire? What if I had to undergo expensive medical treatment? What if something that I thought happened only to others befell me? Insurers, who work with large samples, calculate the probability of such an event and, hence, the possibility of them having to pay out a sum of money to mitigate, to the extent possible, the effects of that disaster. However, the possibility of you undergoing some kind of expensive medical treatment during your lifetime is far more likely than you dying suddenly or your house burning down. Given that costs at private healthcare facilities, where you are most likely to land up, is high, and, doubling every four years 10 months or so, the rest of your money life could easily go out of whack if you had to incur such expenses. Just 12 per cent of India's population is covered with some sort of health insurance. Pared to the bone, for a comparatively small price, health insu...
Read more

IDFC Classic Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   IDFC Classic Equity Fund IDFC Classic Equity is a large-cap equity fund which currently has assets under management worth Rs. 158.52 crore. It was launched in August 2005. The fund is benchmarked against the BSE-200 Index. Performance YTD 1-Year 3-Year 5-Year Since Inception IDFC Classic Equity 0.93 26.61 6.30 1.01 11.65 BSE 200 1.52 17.31 6.00 1.99 12.98 All figures in % as on January 31, 2013; Returns above one-year in CAGR terms ...
Read more
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