While having your house is prudent at the time of retirement, what’s more critical is having adequate funds that can be accessed systematically throughout your retired life for your expenses. Did you know that at an average rate of 6% inflation eating away your money, just after 12 years of retirement your corpus, if left uninvested, will be worth only half its value, and you may have at least 20-30 years of expenses to cater for after retirement.
If you were not able to build up a good enough pile of accessible investments for retirement years, it can be worrisome. But there are ways to monetise your assets to generate your retirement expenses. Here is what planners advise.
Plan your large spends
Income during retirement years is limited. If your retirement pot feels spare, manage your spends rationally. Spend less on luxury and plan your big spends well ahead. Keep in mind that getting a medical insurance post retirement can be expensive. Without one, your hospital expenses can skyrocket.
But managing spends is easier said than done. Suresh Sadagopan, founder, Ladder7 Financial Advisories, said, “Adjusting lifestyle expenses is not a comfortable conversation even if people know they don’t have sufficient cash to maintain the current lifestyle through their retirement years. Half the problem is solved if people are willing to curtail expenses."
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One way to increase your post-retirement cash flow is by relocating to a smaller town if you live in a large city. The house in the city can be sold, a property in a small town of a similar size will not cost as much, and the difference can be invested for getting regular income. But relocating is not an easy choice. For that you must leave behind a community and conveniences you are used to.
Sadagopan said, “The other option is to unlock the value of the property by selling it and moving to a similar house on rent. This brings in lump sum cash flow which can be used further."
Selling one’s primary home is perhaps as difficult as relocation. “It is very hard to convince one to do this. There is denial first and then one tries to sell every other asset before coming to the property," said Amol Joshi, founder, PlanRupee Investment Services.
Rental yields being low in most Indian cities and towns means that rents for a similar sized house can be very low. One may even choose to rent a smaller house as often a large house is not required post retirement.
The last option is going for a reverse mortgage. For that, you must be the home owner and above 60 years of age. It means getting a loan against your house from a bank and getting regular payouts in exchange. The eligibility depends on age, value of the property, interest rates and tenure of payout.
“While this is an option, there are many constraints. For example, a house older than 15 years may not be considered and the value assessed by the bank for a reverse mortgage may be lower than the market value. The advantage is that you can’t be evicted from the house," said Sadagopan.
Many people have second homes from which they earn rental income during retirement. Often these are in tier 2 or tier 3 towns or in the outskirts of a city. “Given the rental equation, the income from this second home is usually not sufficient and one can earn more by selling the house and putting it in a fixed deposit. A tax-efficient way to use the money is to put it in debt funds and build a systematic withdrawal plan," said Joshi.
Ideally, you shouldn’t have to sell assets built through the years. But if you find yourself in a cash crunch in your retired life, monetising your physical assets is perhaps the best way to continue your lifestyle, provided you can let go of the emotional attachment.