07 Aug

Managing Retirement Surplus

Many elder people, who move away from active work either on attaining superannuation or optionally have to face many challenges in managing their retirement surplus. The foremost would be to have a monthly income to take care of regular expenses. I have compiled a list which I believe would be very handy for those who would be looking at creating a retirement income portfolio.

• The first step in managing the retirement surplus is to pay off any outstanding loans either on a car or a house. This would reduce the mental stress when you are retired.
• The next step is to appropriate amounts for any uncompleted major financial responsibilities like children’s higher education or children’s marriage. The financial products for this would be fixed deposits or debt mutual funds. Shares, real estate and equity mutual funds could be avoided. In case, gold needs to be accumulated for marriage purpose of children then it is advisable to go through the mutual fund route by investing monthly (SIP) either through an gold ETF or an open ended gold fund. The monthly purchases would reduce the risk of market timing for gold purchase.
• Next, would be to keep appropriate balances in a savings a/c or liquid fund to manage short term emergencies. Ideally 6 months of mandatory regular expenses (groceries, medical expenses, bills, travel, fuel etc) should be parked here.
• The continuation of an appropriate medical cover is very important at this stage. Choose a medical insurance company which would cover most of the medical expenses till maximum age. Do proper health declaration while filling the proposal form as non disclosure would render the contract void. However, have a proper diet and take good care of your health.
• After managing the above steps, take a re look at your entire financial net worth less your primary residence & gold ornaments with the above adjustments (mentioned in the above steps). This portfolio (after some restructuring) if properly deployed would give you the desired monthly income along with any other monthly pensions/income. This portfolio has to be invested judiciously taking the following
factors into consideration:
• Life Expectancy: Plan your finances well because of medical advancement one generally lives for between 75-85 years. This means your finances should last for another 15-25 years.
• Inflation: Regular monthly income what you receive now would not be sufficient at age 70 yrs because of inflation. Utilize inflation beating products like equity mutual funds in your financial portfolio.
• Taxation: Paying taxes is good, but avoid taxes through judicious deployment of one’s financial portfolio. Use debt mutual funds in addition to fixed deposits.
• Real estate and direct equity investments including IPO’s could be avoided as they would require more skill sets and large resources.
• Invest upto 50-75% financial portfolio in safe investments like Bank FDs, Postal MIS & Senior Citizen Bonds. The remaining could be invested between equity and debt mutual funds. Debt Mutual Funds are preferred over FD’s for their tax efficiencies. However, do not over diversify.
• Review your financial portfolio once every 6 months. Restructure, if required.
• Do not invest in high return earning speculative schemes. Get rich quickly schemes generally makes one poor quickly.
• Do not invest in Life Insurance (traditional or ULIPs) as they are costly and do not serve any purpose for your financial goals.
• In case the regular income is not sufficient from the capital deployed, then do not hesitate to draw into the capital. Do not live poor and die rich.
• Have your nomination across all your investments and have a proper registered will in place. Make a list of all your finances and share this with at least one close member in the family.
• Enjoy your money and let not money management give you more stress.
People who find the above steps confusing and complicated can associate with a good fee based financial planner/adviser who would guide you in each step as per one’s financial goals.

Happy Retirement!!

Naveen Julian Rego-CFPCM
SEBI Registered Investment Adviser

05th April, 2018

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