Note to readers: No two people’s financial plans can ever be the same. Our income, expenses, goals, aspirations and financial obligations differ. But the first principles are more or less common, depending on your age bracket. Moneycontrol personal finance’s new series called ‘Life stage financial planning’ will tell you what these broad principles are, depending on whether you are in your 20s, 30s, or 60s. Yesterday, we wrote about how those in their 50s should plan their finances as they are on the cusp of retirement. But once you retire, then what?
You are retired and want to relax. You’ve worked hard all your life and now want to enjoy. That’s great. But the big question is: how do you ensure a regular income? That apart, you also have to ensure that you have enough corpus to pay your medical expenses and hospital bills. So, you also need to take care of your finances, because you might live a long life. “That’s in fact the first concern for someone in her 60s: Am I going to outlive my corpus or will my corpus outlive me?” says Anup Bansal, managing director, Mitraz Financial Services.
Ensure regular cash flows
Moneycontrol personal finance has always advised readers to run their systematic investment plans (SIP) throughout their earning lives. But once you retire, your income may stop completely. Or, it may be a small amount if you work, say, part-time, as a consultant or a freelancer. There is a way to use your mutual fund investments to get regular income.
Here’s where a Systematic Withdrawal Plan (SWP) comes in. An SWP is a mechanism whereby you withdraw a fixed sum of money every month from your corpus. “What you need to decide here is how much you want to withdraw; the rate of withdrawal,” says Shyam Sunder, managing director, PeakAlpha Investment Services.
Say, you accumulate Rs 1 crore by the time you retire. If you decide to withdraw 4 percent a year, you get Rs 4 lakh in your hands a year or around Rs 33,333 a month.
Or, you could do what Hoshang, 75, from Mumbai does; get a post-retirement job to keep yourself busy and ensure some income. Hoshang spent his entire working life at a foreign bank where he retired at 55. Ever since, for the past 20 years, he has been working at a chartered accountancy firm. His post-retirement salary and his accumulated savings ensure his monthly income continues. “I could never sit at home after I retired. My brain, hands, and legs must be utilised. Else I’m afraid I’ll fall sick,” he says.
Also read: Financial planning in your 20s: Start investments early
Investing in your 60s: A lower income-tax bracket helps
Typically, when you are earning and growing up in your career, you would be in the higher income-tax brackets. In those years, savvy investors stick to mutual funds, as they are tax-efficient. Fixed deposits are generally avoided as the interest earned is taxed at your slab rate.
This changes, once you retire. Your income-tax brackets tend to change over time as your income goes down. This means you can invest in bank fixed deposits. At the same time, other attractive small-saving instruments meant only for senior citizens, open up for you. Opt for Pradhan Mantri Vaya Vandana Yojana, Senior Citizen Saving Scheme (SCSS) and the RBI (taxable) bonds.
Financial planner Gaurav Mashruwala says there is no need to avoid equities. “Do not drastically change your asset allocation or shift to dividend payout options in your mutual funds, in case you invested in ‘growth’ options earlier,” he says. Gaurav says that many times, those who have just retired may spend a year or so to relax at home and do nothing. But many get bored and actually return to work, even if in a limited capacity, just like Hoshang. The income stream begins again and you may not need to change your asset allocation drastically.
Also read: How to plan money life in your 30s? Time to get serious
Start selling your real-estate holdings
Do you own plots or properties that you had put up for rent to earn some income? The 60s are a good time to start selling them.
Vishal Dhawan, founder and CEO, Plan Ahead Wealth Advisors says that it’s common to see senior citizens having held multiple properties they would have accumulated over the years. But maintaining them in old age is a problem, he says. “Besides, in many cases, their children would have migrated abroad. When seniors pass on, it gets very difficult for children to come back just to sell the properties. And to sell real-estate, it takes a lot of time, unless you make a distress sale and lose value,” he adds.
Don’t have insurance yet?
By now, you ought to have a sizeable health insurance policy. But if you don’t yet have one, this is probably your last chance to buy a health insurance policy. There are caveats: first, your premiums will be high, given that you are in your 60s. And second, if you have any health conditions, you might even be refused a health insurance cover.
Also read: Planning finances in your 40s is tricky: sandwiched between ageing parents and growing children
Try buying a basic health insurance cover. If you can get it at a premium you can afford to pay every year, then that’s good. Else, buy a super top-up health insurance cover. So, your cover comes with a deductible amount. If you incur your hospital bill, you would need to pay the initial amount first out of your own pocket up to the deductible amount. If your bill is still larger than the deductible amount, then your super top-up health insurance policy comes in to play for the balance amount.
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