Skip to main content

Planning finances for retired life


   A few days ago, a senior citizen was asking if he could dabble in the equity markets to earn extra money. Having retired more than a decade ago, this investor is sitting on a corpus which is attractive from an equity point of view. But the problem for the investor is that he needs a regular cash flow for living and hence any threat of capital erosion is completely avoidable.


   When told that the investment amount of Rs 10 lakhs has the potential to even become Rs 8-9 lakh in the short term through equity investments, he was utterly disappointed. He was viewing the equity markets with the hope of converting his one million into 1.5 millions. After all, that's what all equity-related news indicated with a return of 40-50 percent.

 

   First, let us understand why our retired investor is considering the option of investing in equity. A decade ago, immediately after his retirement, he would have been happy to get a fixed return from his money as it ensured regular cash flows without the risk of capital erosion. A lot can happen in a decade in financial markets as it is a long time horizon for any market. It is not very different in the last decade either.


   The equity markets have rallied since 2000 and have gone up by as much as 8-10 times. Interest rates have fallen by as much as 40-50 percent. What has compounded problems for retired investors is the high inflation in the last 12-15 months. Those who bet only on fixed return products are facing the challenge of inflationary pressures. In fact, there is a lesson for any individual planning his postretirement life in the coming years.


   One should take into account a number of factors while building a corpus for life after retirement.
   

Here are some tips that could come in handy:

Choose products that beat inflation    

As pointed out earlier, inflation is a big risk though you can expect it to be moderately volatile in the coming decades. While you can expect the consumer inflation index to grow at the rate of 7-8 percent, it is bound to throw challenges at regular intervals as has been the case in the recent times. Hence, an investor needs to allocate a portion of his corpus in products which can beat inflation in the medium to long terms.


   The choice of products could be gold, equity and property. Under the equity category, products like balanced funds, dynamic equity funds and monthly income plans can do the job.

Mix and match fixed return options    

No retired person can ignore the need for assured returns. Hence, they need to form a good chunk of the portfolio at all times. A basket of instruments like fixed deposits, debentures which are secure and non-convertible, and company deposits with good credit rating can be part of this list.


   In addition, investors can also look at capital-protected schemes and pension schemes. The advantage with the latter is that the investments needs to be made well in advance as longer the tenure, higher would be the corpus. Around one-third of the post-retirement fund needs can be met through this product as annuity after retirement ensures regular cash flows. More importantly, a pension plan does not pose the challenge of re-investment which is a big challenge for any investor in the long term.


   With every decade throwing up fresh challenges, you can expect money management to be a challenging task as the years pass by. Chances are, as an investor, you may have to deal with products that you never came across during the early part of your life.

 


Popular posts from this blog

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...

Good time to invest in Infrastructure Funds

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   Good time to invest in infrastructure The Sensex has gained almost 10 per cent from May 15 till date, while the CNX Infrastructure Index has gained almost 17 per cent in the period. The price to earnings ( P/ E) ratio of the BSE Sensex is 18.96; for the CNX Infrastructure Index, it is 24.57. The estimated P/ E for next year is 14.04 for the Sensex. Of the 24 companies that make up the CNX Infrastructure Index, six have a P/ E higher than 20. Does this mean infrastructure is fairly valued? Or, has it run up quite a bit? According to experts, barring stray companies, the infra sector is fairly valued and it is a good time to invest. Even if some companies are facing debt restructuring problems, once interest rates come down and regulatory norms become flexible, they will start giving good re...

Mutual Funds: Past Performance is not just everything

Many a times your agent / distributor / relationship manager tries to push you some mutual fund schemes by enticing you with a typical sales pitch…"Sir, this scheme has generated 20% returns in the past one year." And this sales pitch often gets louder when the market conditions have been favourable. Some of the agents / distributors / relationship managers have another unique way of luring you. They say, "Sir / madam this scheme has been awarded the best scheme award in the past by a leading business channel"... And hearing all these sales talks you investors very often get attracted and sign a cheque in favour of the respective scheme.   But please ask yourself do you hear these sales talks when the capital markets turn turbulent? Why is it so that your agent / distributor / relationship manager avoids talking to you during turbulent times of the capital markets and doesn't boast about returns generated by the respective funds or awards being conferred on t...

TDS Rate and Personal Account Number(PAN)

    The TDS rate doubles to 20% from 10% if you fail to mention your Personal Account Number   IF you run a glance through your pay slip, you will come across something called TDS, which is tax deduction at source. In most cases, the employer deducts this amount at the time of payment of salary itself and pays the total tax amount to the government on behalf of all the employees. If you are a self- employed or practicing professional s, you have to pay this amount yourself.    Tax deducted at source is one of the modes of income tax collection by the government. Under the income-tax laws, income tax at specified rates is required to be deducted while making certain payments.    The rate of deduction of tax at source on interest and rent payment is 10%. For salary payments, the employers deduct income tax at source on a monthly basis after computing income tax liability on estimated annual taxable income of the employee. Tax benefits on housing loan, investments, etc are consid...

Tax Planning: Income tax and Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:   Provident Fund (PF) & Voluntary Provident Fund (VPF) Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free. Public Provident Fund (PPF) An account can be opened wi...
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