Retirement Planning: Things to Know About Managing Your Finances

Retirement is a time to relax and a time to relish a life well lived. Financial travails should not come in the way of experiencing this important stage in life. The monetary state of affairs will undoubtedly undergo a change overnight due to the loss of full-time job. Retirement budget planning is therefore very important as this is a period where you face maximum expenses, minimum income and weakening health.

1. Budget Planning

There is no right and wrong time for budget planning. The earlier the better, as then one can adequately plan for the changes in financial affairs post-retirement. A proper budget plan would help in knowing the quantum of money that is required to live a decent life and making the necessary investment choices in light of the ground realities.

A budget plan would consist of the following:

Daily expenses: Some percentage of the savings should be kept aside for everyday expenses like grocery items and utility bills. Interest earning from FDs, earnings form pension plans etc. can be utilized for this. Parking some money in liquid assets like gold is also a good idea.

Bracing for emergencies: You might come across a lot of unexpected expenses in retirement period. It is important to set aside a sum equivalent to at least six months of expenses to take care of medical emergencies and other unforeseen happenings.

Watch Spending: An awareness of the spending behavior and patterns is probably the wisest option to save for a rainy day, as any follies in this regard would necessarily have to be followed with remedial action.

2. Income post retirement:

Working post retirement: Nothing prevents a pensioner from taking up a job, or part-time assignment if you are healthy and fit. While re-joining the workforce may appear contrary to the goal of a relaxed retired life, it is not only among the most effective income-boosters, but can also lead to an active retired life.

Income plans: Opt out for all possible income generation- be it the interest from your FDs, pension plans, renting out a portion of your house or second home, accommodating students as paying guests if you are alone, or any other, because it is always advisable not to let your savings be eaten way and to stay equipped for any unforeseen situations.

3. Taking care of investments

Smart investments are a much-needed route to security in old age to turn your retired life into a smooth affair.

Keep a watch on the following:

Protect Capital: It is of utmost importance for senior citizens to preserve their life-long savings. Safe and fixed return investment is the way to go, and avoid aggressive investment investments such as equities.

Ensure Liquidity: Senior citizens have to rely on their accumulated savings post-retirement, in the absence of a monthly salary. To cater to unforeseen emergencies, they should opt for investment products that are easily convertible into cash.

Below are some senior friendly investment options available:

Senior Citizens Savings Scheme (SCSS): SCSS is offered by many as well as the postal department. It is open for seniors aged 60 and above. The scheme has a stipulated period of 5 years and carries an interest rate of around 9 per cent.

Fixed Deposits (FD) for senior citizens: Fixed deposit schemes specifically for senior citizens are offered by banks such as Punjab National Bank, Yes Bank and KarurVysya Bank, as also companies such as HDFC Ltd, LIC Housing Finance and Mahindra Finance. If you are opting for company deposits, make it with AAA rated ones, which are the safest.

Monthly Income Plans (MIP): These market-linked MIPs are offered by mutual fund houses such as Birla Sunlife, HDFC and Franklin Templeton. These schemes provide higher rate of returns compared to pure debt instruments such as FDs and post office schemes as they invest 15-20 per cent of their assets in equities.

Post Office Monthly Income Schemes: The post office's POMIS scheme assures a monthly income, with interest earnings of 8 per cent and a bonus of 10 per cent at the end of 6-year tenure.

Post Office Time Deposit (POTD): POTDs are deposit schemes offered by post offices and are similar to bank fixed deposits, except for the lower interest rates. The maturity period ranges from 1 year to 5 years and the interest ratesvary from 6.25 to 7 per cent, compounded on a quarterly basis.

4. Insurance

Health insurance is a necessity for our times, given the increase in life expectancy and the consequent rise in medical expenses. Many insurance schemes are tailor-made for senior citizens, such as the following:

VarishtaBima from National Insurance: This plan has a maximum entry age of 70 and an uppermost limit of Rs.1 lakh towards hospitalization cover. It covers existing ailments such as diabetes and high blood pressure at an additional cost of 10 per cent each.

Heart Beat from Max Bupa: This plan is open for people aged 70. Among the positives, this plan does not impose sub-limits on ICU expenses and there is no waiting period for an accident cover.

Red Carpet from Star Health: The plan has a maximum entry age of 74 and there are no tortuous medical tests unlike the other plans.

5. Met with emergencies? The property pays for the owner!

A reverse mortgage loan would provide the much-needed money to expenses like home renovation, medical expenses, travelling abroad, children's marriage etc.

Reverse mortgages are being offered by most banks in India. A senior citizen who owns a property, but lacks a regular source of income, can mortgage the property (self-owned) with a bank and get regular payment and more importantly reside in the same place throughout his life. On the death of the borrowers, the legal heirs can repay the dues to the lender and regain ownership of the property, or the lender can sell it and pay the difference to the heirs.

Detailed planning and a proper road-map can turn retirement years into a golden period of one's lives.

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