"One of the most common mistakes is an oversight in estimating the future expenses correctly,'' points out K G Krishnamoorthy Rao, MD and CEO, Future Generali India Insurance. Make sure you work out your expenses and calculate its value in future, taking into account the effect of inflation.
Most of us are worried about the sunset years of our life. But if you save and invest wisely, this period can be very glorious and beautiful.
While the most ideal situation is to start saving early for retirement, even if you are beginning late, you can invest wisely to ensure that your financial goals are met.
"One of the most common mistakes is an oversight in estimating the future expenses correctly,'' points out K G Krishnamoorthy Rao, MD and CEO, Future Generali India Insurance. Make sure you work out your expenses and calculate its value in future, taking into account the effect of inflation.
When it comes to investing the money, not all senior citizens have the same risk profile. There are two categories of senior citizens – one that needs a regular income for its daily expenses and the other that does not have to worry about income for daily needs.
The former category needs to invest their money in such avenues that will provide a regular income and assure safety of their corpus. The funds of the corpus saved at the time of retirement should be invested into bank fixed deposits (FDs), post office savings schemes (to avail the tax benefits under Section 80 C) and a low risk short term debt fund,'' says Vidya Bala, head of mutual funds research, FundsIndia.com.
"One of the tools to generate a regular return is to invest in a mutual fund and use the Systematic Withdrawal Plan (SWP). With an SWP, one is not dependent on the dividend for a guaranteed income,'' advises Bala.
Investing a part of the corpus in a short-term debt fund would ensure slightly higher yield than investments in post office savings schemes and FDs.
While the returns from FDs and PO schemes are in the region of 8-9% currently, the yields from ultra-short bond funds is in the region of 10.5% (best performing funds) to 8.6% (average performing funds).
The investment in the debt fund and the SWP works out to be a reasonably tax efficient move. "The withdrawal includes part capital and part gain, of which only the gains part would be taxable at the applicable slab rate for the individual,'' adds Bala. Besides, other benefits like indexation would also be applicable.
Those senior citizens who do have a pension or rental or any other source of regular income, need to follow a different approach. First, identify the goals of your investments. Usually, this category of senior citizens would like to invest their money for their own long term requirements, say for five or ten years, or for their children and grandchildren possibly.
These senior citizens can adopt a hybrid approach of investing about 10-20% in equities and the balance 80-90% in debt. "One option is to invest in Monthly Income Plans (MIPs) that provide a regular income,'' says Bala. Such investments will provide marginally higher returns than the regular debt products.
Senior citizens can also invest in pension funds and schemes, but one should compare the returns on investments. "The fact that the interest is taxable is a disincentive. The interest should have been made tax-free,'' says Arvind Rao, chartered accountant.
Also, the amount from the pension is not enough to sustain a living. "It needs to be supplemented through other investments,'' adds Arvind.
Apart from daily expenses, "health care is a major expense for senior citizens,'' points out Rao. If a health cover is taken at an earlier age, it ensures a lifelong cover if the policy is renewed continuously without any break. "At a later age, the health cover may not be available for the senior citizen,'' cautions Rao.
"It is seen that often people use their provident fund and gratuity money to retire their home loans at the time of retirement. In order to avoid such a situation, one should start saving for retirement from the age of 30,'' says Arvind.
Remember, ideally, retirement planning should begin when you have at least 20 years of earning years so that you have a sizeable corpus that helps you earn enough by way of interest to take care of your expenses post retirement.
Growing older is not a choice, but we do have a choice on how we choose to age. To borrow from the Scout's motto, we can choose to `Be Prepared' so as to ease the journey through the sunset years of our life.
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