We talk about sourcing money or regular income to secure our retirement. Very rarely, does one think of how to ensure a regular income after his or her retirement. This is important because retirement coincides with no or very little access to regular income.
To start with, you are sitting on a decent retirement corpus that you must now use wisely to earn a regular income for your daily expenses. The first step is to make a list of all your investments that have now matured or must be redeemed.
For example, you have government-sponsored schemes like the Employees’ Provident Fund, Public Provident Fund, National Pension Scheme (NPS), bank deposits, PSU bonds and more. Next, look at the mutual funds that you would want to redeem completely or partially. Once you are aware of the corpus in hand, you can easily decide how and where to invest to ensure a regular flow of income post-retirement. You cannot afford to make mistakes with your retirement corpus amount as active income flow stops and it may take a while to start with a passive income source.
Now that you know how much you have earned and saved to date, the next step should be to divide your corpus into two parts – one part that would last for the next 20-30 years and another that would continue to earn daily expenses for the coming five to 10 years. Saving for the next 20-30 years is crucial considering how the age factor can refrain you from seeking employment again. You will witness diminishing income sources coupled with continued or rising expenses on medical treatment that will only worsen your financial conditions.
You can accordingly divide and handle the corpus into two parts or buckets.
Planning for formative years post-retirement
For regular income in the near future, say five years, it becomes necessary to rely on debt instruments and liquid funds that generate liquid funds for years to come. You may start with simple fixed deposits for immediate interest income. This will help take care of your regular day-to-day expenses.
Now that you have found ways to maintain your daily expenses, you must not invest with a long-term purview. If you are looking for risk-free investment options to secure your future beyond this period, you may opt for government-sponsored schemes like post office fixed deposits, National Savings Certificates, Senior Citizens’ Savings Schemes (SCSS), Pradhan Mantri Vaya Vandana Yojana (PMVVY), RBI Floating Rate Bonds, debt funds and more.
For example, putting money in an SCSS ensures 7.4 per cent interest paid quarterly. Assuming that you have put in ₹10,00,000 in this scheme. This would amount to ₹74000 every year. If your spouse is also retired, he or she may park in the same amount in an SCSS to garner the same amount as interest income. The combined interest income would give you ₹148,000 interest income.
Then, you have the PMVVY scheme that also guarantees 7.4 per cent interest, the difference being that you can choose the frequency of interest between monthly, quarterly, half-yearly or annual payout options. Apart from the current income source that you may have from pension plans like the National Pension Scheme or other pension plans, this extra interest income will help pay off your additional expenses every month.
RBI’s Floating Rate Bonds currently give out 7.15 per cent interest. The interest rates depend on the NSC rates are reset every six months. The interest payout is half-yearly. In all these cases, the interest income is taxable as per the existing Income Tax slab rates. However, you may choose all or any one of them based on the safety net you are looking at and your financial goals.
Planning for life’s later stages
You must plan for the later stages, which are the remaining 20 years of your life. Harsh but true! Planning for these years necessitates an understanding of how certain investments work and how one may choose between them based on their risk-rewards return ratio.
For example, if you are not inclined to parking money in equity funds owing to their volatility, you may opt for debt funds that put your money in myriad debt instruments. Though the returns are comparatively lesser than equity funds, the risk component is also too low considering how these funds abstain from putting money in stocks and invest only in deposits, bonds and debentures only.
Many complain about non-performing debt funds. Debt funds are available in various categories. There are some thematic debt funds like Banking & PSU funds. However, a lot depends on fund management, which is why you must be aware of the kinds of debt funds you must put your money in.
Alternatively, you may opt for a conservative hybrid fund that tilts more toward debt than equities or a systematic withdrawal plan (SWP) that will you to withdraw money in bits systematically.
Those looking to completely secure their retirement corpus without risk frequently choose ultra-short-duration and low-duration categories to generate income. Being selective helps, and that is why it is best to compare the rolling returns of these funds, point-to-point fund returns and then their expense ratios.
Picking the right debt fund is not easy, which is why many retired people seek the help of an investment advisor to help choose for them.
Planning for the last stage
The money you have today may not be enough to take care of your expenses after 20-30 years. Imagine you are going to turn 80 or 90 years old but are unsure of how much money you have left to take care of your essential expenses. Being short of money can take a toll on both your physical and mental health.
To ensure that you have enough money left, you may start putting a part of your retirement corpus in equity mutual funds such as the large-cap funds that invest in stocks of some of the top companies. This reduces the risk element as these companies are less subject to market volatility. You may opt for an index plan that moves in sync with the equity markets, thus, allowing you to continually earn with the market movements. Alternatively, there are aggressive hybrid funds that invest in both equities and debt, which means that your investment in the fund gets parked in both. This guarantees great returns synonymous with equity along with security synonymous with debt.
Also, these funds earn returns that beat inflation, which means that if you start investing a part of your retirement corpus at the age of 60, you will have accumulated enough corpus by the time you turn 90 years old.
Though one may look at this investment opportunity as a far-fetched option to save and invest money, setting aside a small portion of your retirement savings in growth-oriented funds like large-cap fund investments can go a long way in helping you secure your financial future in the long run. You can enjoy your longevity only when you have enough money to survive the perils of living too long.
