Post retirement investment avenues for financial planning
Once you have retired, you no longer have a steady source of income. Managing your finances after retirement is different â€“ but it need not be difficult. Financial expert Raag Vamdatt discusses various post-retirement investment avenues which can help one to enjoy a healthy financial life even after retirement.
When you are working, you are used to a certain way of spending, saving and investing. But when you retire, a lot changes in your financial life - you no longer have a steady source of fixed income every month. Therefore, you also need to change the way you save once you are retired.
The characteristics of post-retirement investment avenues
Safe Returns: You don't want too much risk in your investments. You cannot afford to lose money, since there is no monthly salary to make up for that loss.
Regular Returns: Since you would be using the interest to take care of your day to day expenses, you would want your returns to be regular, and not sporadic.
Avenues of Investment
Considering the above requirements, here is a list of avenues you should consider for post-retirement investments.
Senior Citizens Savings Scheme (SCSS) - The SCSS is a government sponsored scheme, and is therefore absolutely safe. It offers a great rate of interest (9%) and the interest payout is once every 3 months. The maximum limit of investment in SCSS is Rs. 15 Lakhs.
Fixed Deposits (FDs) - FDs provide good returns which are also quite safe. You can choose a monthly interest payment option to get regular interest payments.
FDs also provide you adequate liquidity, since they can be broken in case of emergency needs.
If the FD is kept at a reputed bank, it is almost as safe as a government backed investment avenue. However, for 100% safety, you can consider investing in post office term deposits.
Post Office Monthly Income Scheme (PO MIS) - This is also a very safe investment avenue where you receive a good rate of interest (8%) on a monthly basis. On top of this, you also get a 5% bonus at the time of maturity, making the effective yield 8.9%.
National Savings Certificate (NSC) and Kisan Vikas Patra (KVP) - These are other safe avenues of investment. They pay interest only on maturity, though.
Investment in Equities / Stocks after Retirement - Most people do not invest in stocks after retirement, thinking that they are too risky. However, research has shown that stocks provide the best risk-adjusted returns over the long term.
Also, long term investment in equities beats inflation by a large margin. Therefore, some investment in stocks is essential post-retirement to prevent your portfolio from losing its value due to inflation. An optimal level of stocks in your post-retirement portfolio is 10-20%.
You should invest in equities using diversified equity mutual funds. Preferably, you should invest using a systematic investment plan (SIP).
Managing your finances after retirement is different - but it need not be difficult! If you follow the above mentioned advice, you can ensure that you would continue leading a healthy financial life even after retirement.