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Make retirement corpus work

Most retired people gravitate towards safe assets and instruments that assure returns, while staying away from the equity market. This is not a wise move

You may have worked hard all your life, but the salary or business income that you have earned all these years will not be enough to see you through your retirement years if you just park them in your savings bank account. You have to make the money work for you. If you haven’t yet planned for your retirement, there is some saving grace. Many of us get a retirement corpus at the time of retirement. Here’s what you should do with that corpus.

Should you avoid equity?

Most retired people tend to gravitate towards safe assets and instruments that assure returns, and try and stay away from instruments linked to equity or debt. Is this a wise move? “No," said Suresh Sadagopan, founder, Ladder7 Financial Advisories. “Life expectancy has increased. It is necessary to make the corpus last long", he added.

Raghvendra Nath, managing director and founder, Ladderup Wealth Management agrees: “General mindset among the retired is that they want safe instruments as they don’t want to take risk. Today, say, your expenses are 50,000-60,000 a month. Before you know, it will rise to 1 lakh, and then 2 lakh because of inflation", said Nath.

How to invest

Assuming that at the age of 60, you plan to invest your retirement corpus money so that it lasts for another 20-25 years. You will need to plan in such a way that you get inflows for the short and long term. One of the better ways to manage your cash flow and ensure that your initial investments appreciate over time is to invest in mutual funds.

Use a mix of debt, monthly income, balanced and equity funds. For money that you need in the near term, use a combination of debt and monthly income plans. For money that you need after 10 years or later, use balanced and equity funds.

Also keep an eye on your tax status. “Most fixed return products like the Senior Citizen Savings Scheme (SCSS), non-convertible debentures (NCD) and fixed deposits are taxable. Utilize them first if you don’t fall in any tax bracket or in the 10% tax bracket. For higher tax brackets, debt funds are good," said Anil Rego, chief executive officer, Right Horizons, a Bengaluru-based financial planning firm.

Avoid volatile products. “Ideally, stay away from income funds and government securities funds," said Kartik Jhaveri, founder and director, Transcend Consulting (India) Pvt Ltd.

You could consider instruments that give capital protection and assured returns, like SCSS, bank and company FDs, NCDs and tax-free bonds when new issues hit the market.

Consult a planner

It’s not a bad idea to consult your adviser or financial planner. When it comes to investing a lump sum, it’s a good idea to invest with a plan. “Pure-play distributors are best avoided as there is going to be conflict of interest," said Sadagopan.

But at that age and with limited income, can affordability of advisers be a problem? “Typically, for 1 crore worth of portfolio, many advisers would charge just about 30,000-35,000. That’s only 0.3-0.4%," said Nath.

Avoid stock brokers or consulting them too often. “I have seen many senior citizens trade regularly, through the day. They even go to their broker’s office, almost every day, and trade for hours," said Nath. He narrated an incident that happened when he was employed with a financial services firm where an elderly man had come to one of the brokers of the firm with a corpus of 60 lakh that he had received as a part of his retirement corpus. He lost all this money in three months, said Nath, because he kept trading in commodities. “The firm had warned him about the consequences, but he wouldn’t listen. His family came to requesting us to get some money back," added Nath. “We were not able to help them."

So, to make sure that your post retirement life is financially sound, invest your retirement corpus wisely.

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