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How to carry out post-retirement financial planning?

How to carry out post-retirement planning?

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Retirement is the time when everyone who has worked hard throughout their life wants to spend the remaining part of their lives without stress. To achieve this aim, individuals have to invest wisely, and since this is the time when most of them would not be working they have to depend on their savings and investments. Moreover, life expectancy has also increased due to advanced medical facilities and if people are wise in their investments, they can ensure that they are not dependent on financial support from their children in the later stages of their lives.

Most people prefer to put their money in debt instruments after retirement which is not a great decision. Some of the money has to go to equity to provide good returns. Remember that if you live for another 30 years after retirement the money may not last for so long. So we can divide the money into 3 buckets/parts and invest accordingly.

Bucket 1-

This investment is for 5 years and is for immediate money requirements. A person can invest their money in the Senior Citizen Savings Scheme (SCSS), Pradhan Mantri Vaya Vandana Yojna (PMVVY), or Systematic Withdrawal Plan (SWP) of the mutual funds.

Senior Citizen Savings Scheme-

The Senior Citizens Saving Scheme is a government-backed scheme in India and people can invest a lump sum in the scheme individually or jointly and can get regular income along with tax benefits. It can be opened in any of the post office branches. The account can be opened by depositing a minimum amount of Rs 1000 and the maximum limit is up to Rs 15 lakhs. Senior citizens above the age of 60 years can invest in the scheme. The present rate of interest on the senior citizen saving scheme is 8 % payable on a quarterly basis. The amount deposited in the scheme is eligible for a deduction of Rs. 1.5 lakhs under section 80C of the income tax act.

Pradhan Mantri Vaya Vandana Yojna-

For investment in this scheme, the individual must be 60 years of age and the maximum investment limit is Rs. 15 lakhs. The tenure of the policy is 10 years. The pensioner will receive an assured return of 8% per annum for the policy duration of 10 years. If the pensioner survives the entire policy duration the purchase price will be paid along with the final pension installment. The different pension modes are monthly, quarterly, half-yearly, and annual.

Systematic Withdrawal Plan-

A systematic withdrawal plan is a mutual fund plan in which the investors can withdraw a fixed amount at regular intervals which can be monthly, quarterly, or annually from their investment made in the mutual fund scheme. To generate cash the systematic withdrawal plan redeems the units of the mutual fund scheme at the selected interval. Since the scheme provides regular income it becomes convenient for people who require cash for meeting their regular expenses. If the rate of withdrawal is lower than the fund return there is some capital appreciation in the long run. People who don’t have pension earnings can start SWP and create their own income.

Bucket 2-

The next part of the money is what may be required after 5 years. Here you can invest in hybrid mutual funds, gold, and debt funds. If you wish to have better investment returns equity can’t be avoided. There would be volatility in the short term but the returns would be good in the long term. The money can be invested in hybrid mutual funds.

Hybrid Mutual Funds-

Hybrid mutual fund schemes invest in equity, debt, and other asset class depending on the investment objective of the scheme. These funds diversify with an aim to minimize the risk involved. They generate better returns than debt funds but are less risky than equity funds. There are different types of hybrid funds.

Aggressive hybrid funds invest 65% to 80% of their assets in equity and the remaining in the debt market and money market instruments.

Conservative hybrid funds invest 75% to 90% in fixed-income generating securities and the remaining in equity and equity-related instruments.

Dynamic asset allocation funds invest both in equity and debt depending on the current market conditions.

Bucket 3-

The third part of the money should be invested in equity funds like the flexi- cap funds and large and midcap funds. This money would be required after 10 years i.e. after the age of 70 years. Any volatility would be evened out during such a long period of time and you will get good returns from equity. The money can be invested in flexi-cap and large-cap funds. Follow proper asset allocation and if required take the help of a financial advisor.

In the flexi- cap funds the minimum investment in equities would be 65% and the remaining would be in debt instruments. Flexi-cap funds invest in large-cap, midcap, and small-cap funds.

There is high inflation across the world at present. Everything has become costly and it will become very difficult for the money to last your lifetime if you live 25-30 years after retirement. Though equity funds tend to be risky and volatile in the short term but over a longer horizon of over 7-8 years they are not so risky and give good returns.

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