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Turning 50? Here’s your personal finance checklist

Turning 50? Here’s your personal finance checklist
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First Published: Fri, Feb 11 2011. 12 30 AM IST

Shyamal Banerjee/Mint
Shyamal Banerjee/Mint
Updated: Mon, Feb 14 2011. 12 56 PM IST
One fine evening, you step into your house to be surprised by a birthday party arranged by your child, the baby whose first birthday you planned so meticulously.
You realize the child has grown up and you have turned 50. You also realize that the age of retirement is close. But retirement today is no longer about surrendering to your children. As the French philosopher Victor Hugo said, “It is the youth of old age.”
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From tomorrow, things may still be the same for the next few years. But now is the time to stop, take stock and run through a checklist to ensure that when you retire, and are still healthy enough to indulge in all that you could not because of other responsibilities and commitments all these years and have the time too, the money works just the way you want it too.
Goals and gaps
Begin by reviewing your goals and see if they are on track. For instance, says Archana Bringarde, a Mumbai-based financial planner, “Today an average 50-year-old would have generated substantial wealth. They have certain responsibilities to take care of, such as children’s higher education, marriage—which are not likely to be done yet—and their own retirement.” Your 50th birthday is a good time to get a consolidated idea of your savings and returns from various investments and ensure that you have enough investments to take care of your goals. If you haven’t yet, you still have almost 10-15 working years to get them on track.
Shyamal Banerjee/Mint
It’s also good to get the health insurance needs assessed once again. If you have an insurance cover provided by the employer, then you need to take your own. Similarly, though at the cost of a higher premium and subject to several conditions, you might even be able to get a cover for any recent health complications such as cardiac problems. Dipika Kalra, associate financial planner, International Money Matters Pvt. Ltd, a Bangalore-based financial planning-cum-investment advisory firm, says, “Taking stock of your insurance policies will help you determine exactly how much you are covered for and how much funds you would have to arrange for in case of a medical emergency.”
By this time you would have paid off most of your liabilities but you might have about 10-20% remaining. Bringarde adds, “By this age, most also finish repaying their home loans and other liabilities. If you haven’t, then it’s good to prioritize it, so even if you decide to retire a little early these won’t hold you back.” The cash freed up from equated monthly instalments could go into the funds created to meet your next goal.
Portfolio rebalancing
The most important item on this list—it’s time to begin rebalancing your portfolio. Says Bringarde, “All these years you focused on creating wealth, now is the time to begin securing your wealth and protecting it from different kinds of risks such as market risks in case of your equity investments. This is also the time to reinvest in such a way that wealth and assets you have accumulated so far will yield you a steady and sufficient flow of income.”
Most planners would suggest that you put to use idle assets that you may have. Says Kalra, “At this age we advice our clients to put on lease if they have any property or real estate asset lying idle as it adds to their income. Although they still earn and wouldn’t need it now, it will be a source of a steady flow of income after retirement.”
Debt-equity balance: As you come closer to retirement, it is advisable to gradually prune your investments in equity and bring it down to an ideal level. “It is important to not get carried away by the market sentiment as it will be difficult for a 50-year-old to replenish the funds whose value has been eroded compared with a 30-year-old,” says Surya Bhatia, certified financial planner and principal consultant, Asset Managers, a New-Delhi based financial planning firm.
The ideal level will differ from person to person, but the thumb rule is generally 100 minus your age. Says Bringarde, “If an individual has a sufficient corpus to meet a bigger proportion of his pending goals in debt instruments already, then he can begin rebalancing his portfolio a little later.” However, it’s important to have enough funds parked away in debt instruments to sail you through in case the markets tank.
How to transfer: The transfer is best done over a longer horizon and should ideally be done over five years. The transfer should be complete two-three years before retirement. For instance, says Bhatia, “If your exposure to equity is about 70-80%, then over a three-year time period, you should try and bring it down to 50%.”
You could move your funds parked in equities to bank and company fixed deposits, monthly income plans, fixed maturity plans of mutual funds and post office saving schemes.
Avoid long maturity: Depending on your age and needs, you could explore investments with a lock-in period ranging from a couple of months to five to seven years. This will ensure that the assets you have built over years are available just when you need them. “Try to avoid investing in instruments with longer maturity period. Though you have all the options to invest but try to keep a shorter lock-in period,” says Bhatia.
At this age you are also likely to need chunks of money to meet your goals. Investing in instruments with a shorter lock-in period will also help you improve liquidity in hand.
Liquidity margin and contingency fund
As you gradually move your investments from equity to debt instruments, you enhance your liquidity margin. Adds Kalra, “At this age, we have noticed that a lot of our clients like to take those vacations or go fine dining. And given that they have both the time and money, why not?”
It is also prudent to build a bigger contingency fund. Says Kalra, “We advise our clients to increase the size of their contingency fund by 30-40% especially if you are predisposed to a certain medical condition.” So if earlier your emergency corpus was large enough to meet your expenses for three-six months, now it would be about six-eight months.
Documentation
It is best to monitor your investments from day one. However, we tend to lose track mid-way. For instance, you might have changed jobs but may not have got your provident fund contributions transferred to one account. You stand to lose in that case as the government has decided not to pay interest on accounts dormant for more than three years. So it is time to get them in order.
Says Kalra, “Consolidating documents take time. A lot of people tend to forget investments they made in the early years such as National Savings Certificate, Kisan Vikas Patra or any other made at the last moment to save taxes.”
Involve your family
By the time you grow 50, your kids will be matured and responsible enough. Keeping them in loop would mean that they can step in during an emergency. Says Kalra, “Most planners involve both the husband and the wife in the planning process. But the children may not be involved. If they know your planner, then they would get in touch with him as he is bound to know exactly how you have planned your money and where you have stashed it. He will help the family liquidate the right funds.”
Nominations
It is good to have your spouse as a joint holder so that both of you have equal access to your assets. If your spouse is not a joint holder, then a nominee is important. Nominations are nowadays mandatory for most investments, and hence you are likely to have a nominee to all your recent investments. However, it is a good idea to revisit all your investments, especially the age old ones, and update the nominee. Says Bringarde, “Often people nominate their parents or siblings to investments made before their marriage. They might now want to change the nominees to their spouse or children.”
Will
Fifty is a good time to make a will as you would have accumulated substantial wealth and assets. While a will made earlier in life would probably be revised more often, a will made at this age would most likely not change. Even if you have your nominations in place, it does not eliminate the need for a will. Legally a nominee is just the caretaker or trustee of the funds/assets till the legal heir or the ultimate beneficiary can be determined.
Having a will in place can also help eliminate simple litigations that might arise out of multiple claims to an asset as the will ensures that the assets go to the right person at the right time.
As you celebrate your 50th birthday and step into the silver years, we wish you not just good health but also a healthy and well-planned financial life.
harshada.k@livemint.com
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First Published: Fri, Feb 11 2011. 12 30 AM IST