Building Your Post-Retirement Financial Goals
Retirement is the culmination of one chapter of your financial planning journey – but it doesn’t mean you stop financial planning for good. In fact, the next chapter will soon begin. This post-retirement planning isn’t just a continuation of pre-retirement planning, though, because the nature of your financial situation changes once you retire.
Sep 2022
2 mins read
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The biggest shift is in your personal finance situation. Before retirement, your financial goal was wealth accumulation, and both you and the market contributed to your funds. But after retirement, your income stops, so only the market will now contribute to your funds. The dynamic shifts from making money to withdrawing money. This phenomenon may lead to a feeling familiar to people in their 60s – what if I run out of money?
The answer to this anxiety is careful post-retirement financial planning, based on clear goals – and here’s how you can go about it:
1. Manage a consistent cash flow – After retirement, your income may cease, but you can still rely on mutual funds to ensure a regular cash flow, using a systematic withdrawal plan (SWP). With SWP, you can withdraw a fixed sum of money every month from your corpus – e.g. with a Rs. 5 crore corpus, you could withdraw 5% per annum and get INR 25 lakh annually, or a little over Rs. 2 lakh per month. While pursuing investment planning for retirement, you might even take up consulting work to supplement your income. This will help in managing your daily expenses and ensuring steady cashflow.
2. Streamline your investments – Reorient your investments towards options that work better in retirement. Earlier, you would have prioritised tax-efficient mutual funds given your high tax bracket. But tax is less of a concern post-retirement – in fact, nearly 37%1 of retired people choose fixed deposits as their preferred option. Some of the most popular post-retirement investment options are:
a. Fixed Deposits (FDs) – Preferred by retirees due to their safety, fixed returns and flexibility to choose the deposit tenure.
b. Senior Citizens’ Saving Schemes (SCSS) – Offered by banks or the post office. This scheme has a tenure of 5 years and can be extended for another 3 years, with an investment limit of Rs. 15 lakh.
c. Post Office Monthly Income Scheme (POMIS) – This 5-year savings scheme offered by post offices has an investment limit of Rs. 4.5 lakh for a single account, or Rs. 9 lakh for a joint account.
d. Reverse Mortgages – A great source of regular income for retirees, reverse mortgages let you pledge your house to the bank and receive a regular sum of money, depending on the valuation of the house and the chosen term. Any homeowner above 60 years of age is eligible.
e. Annuities – This is a contract where you can generate a steady cash flow through lump sum policyholder payments. Annuities are open to anyone between the ages of 40 and 100 – but remember, they are not tax-free.
3. Sell your real-estate holdings – Maintaining multiple properties can get harder as you grow older. Distress sales can lead to a loss in value, so boost your liquidity by selling properties while you can still fetch good value for them.
4. Make room for health insurance – Most people already have solid health insurance close to retirement. If not, this may be your last chance to get insured, though premiums will rise as you cross 60 and you may even be refused cover on account of pre-existing conditions. Even a basic health insurance cover works fine – if paying a yearly premium is difficult, opt for a super top-up health insurance cover, which comes with a deductible amount.
Some things don’t change even after retirement, and goal-based financial planning will continue to be as vital now as it was during your career. Following these tips for money and investment management will go a long way in securing your goal-based financial planning journey.
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