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Road to stress-free retirement years

By Deepak Yohannan
October 17, 2011

(The views expressed in this column are the author’s own and do not represent those of Reuters)

Retirement is not the end of the road; it is the beginning of yet another fabulous journey. After all the gruelling years of hard work, a calm and stress-free retirement is the best reward one can get. So how do we ensure we spend our sunset years without worrying about any liquidity crunch? Here is an overview to help you live life on your own terms after retirement.

Understanding retirement needs

Every stage of life has varied financial needs. Retirement needs are also different and you are most likely to spend on:

- Basic day-to-day expenses

- Medical and other emergencies

- Holiday abroad or in India

- Gifts for children or grandchildren

Of course, these needs vary from person to person. Nevertheless, realisation of such future expenses is vital to prepare yourself before time.

Path to a financially secure retirement

Retirement requires planning. Planning your investments, allocation of assets, etc. has to be done in a disciplined manner. Haphazard random investing will lead you nowhere. A financial plan helps you allocate your hard-earned money wisely to different asset classes and meet your financial goals at the right time. When planning for your retirement, zero in on how much corpus you would need to maintain your desired lifestyle after retirement. Ask yourself the following questions in order to gauge and make realistic decisions.

What is the current rate of return on your investments?
What is the existing invested corpus with you?
What is the shortfall to meet your requirements post retirement?
Any pension plans or benfits from employer?
Number of years left for retirement?
What is the rate of inflation?

The early bird catches the worm

In the early career years, most people procrastinate when it comes to saving for retirement and the common refrain is – ‘why save today, when retirement is so far away’. In reality, the earlier one starts, the larger will be their retirement corpus. The power of compounding lets you gain substantially over a longer period of time. So start saving early and include retirement in your financial plan.

Investing sure doesn’t stop with retirement

Rise in cost of living and medical treatment, existence of nuclear families and an increasing life expectancy. All these are reasons why investing shouldn’t stop with retirement. What changes after retirement is the choice of assets. As the years pass by, an individual’s risk appetite reduces and preservation of capital becomes more necessary. In such times, it makes sense to opt for safe low-risk investment options that give decent returns coupled with security. Here’s a sneak peek at some of them:

Senior Citizen Schemes – Come with a minimum investible amount of 1,000 rupees. Though it has a lock-in period of five years (premature withdrawal is permitted with a penalty of 2 pct), an interest of 9 pct per annum is paid quarterly that automatically gets credited to a savings account.

Fixed Deposits – Provides high liquidity. Interest may not be competitive at times but definitely the perfect option for totally risk-averse senior citizens.

Post Office Monthly Schemes – Comes with a lock-in period of up to 5-6 years with a monthly income option. It offers a rate of interest of 8 pct and a bonus of 5 pct at maturity.

Mutual Funds – For those comfortable with a slight amount of risk, equity-oriented hybrid funds which invest up to 65-70 pct in stocks and the rest in fixed income securities are ideal. Others could opt for pure debt mutual funds that invest in bonds and treasury bills.

Retirement years should be spent with your loved ones, nurturing hobbies and things that you like with no financial worries. A little bit of effort and discipline can turn this dream into a reality.

(Write to the author at deepak@myinsuranceclub.com )

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