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Fuel for the Last Leg

The later retirement years are very different from the early days of a retired life. This is when old age actually sets in and good returns on your investments take a back seat. A post-retirement job doesn’t always generate steady income and much of your expenses have to be met through existing investments.

As such, the focus should be on having a steady stream of income from fixed, assured and safe investments. By the time you are in your 70s, the security of your income and retirement assets becomes the most important. Typically, people prefer a light portfolio as they will not be as active as before and might also want to spend less time on financial management.

INFLATIONARY IMPACT

The impact of inflation on retirees is maximum during this period. This also affects their spending pattern, which dips to almost 70 per cent as compared to early retirement years. As an example, a 5 per cent rise in inflation in 10 years would have reduced the value of your money from `10,000 then to `6,000 now. Exposure to equities to offset inflation is also nil now as the scope to digest volatility is the least. It’s best to stick to a budget and keep the spending in check. Senior citizens may take tips and information on bargain offers from their children who will be much better informed. There are exclusive discount offers for senior citizens on travelling and dining.

HEALTH ON THE MIND

Typically, expenses on travel decline in this period, but those related to health rise. At present, medical insurance cover in India usually extends till the age of 80. As such, it is better to choose plans for self and spouse with lifetime renewability and keep renewing them with same insurer religiously.

OTHER RISKS

Continue to insure your assets, be they your car, house or other belongings. Also, periodically, review your emergency fund requirements as it will come in use in medical emergencies. It’s important to keep some cash at home as physically you will be less capable of visiting the automatic teller machines (ATMs) every now and then.

INVESTMENT STRATEGY

While you still need adequate liquidity and an inflation-adjusted regular income, the security of your wealth occupies centrestage. So, for your regular income requirements, use a combination of pure debt-based products. While they do give constant income, they have two drawbacks. Inflation erodes their returns and partially liquidating them during their tenure attracts penalty. Hence, choose and renew existing investments in these fixed-income products only after considering the tenures. It’s advisable not to shift to newer products unless they come with fixed and assured returns. Bank fixed deposits, Senior Citizens Savings Scheme, post office Monthly Income Scheme (MIS) and immediate annuities schemes should continue to form the bulk of your portfolio. Ensure that you have easy access to the specific bank or post office from where you have to get the interest income.

Little exposure in monthly income plans (MIPs) of mutual funds that typically have 15-30 per cent exposure in equities could be a part of your portfolio. But remember that though they generate inflation-adjusted returns and have liquidity, their returns are not constant and depend on the fund’s performance. As such, it’s better to supplement income from these products with systematic withdrawal plans (SWPs) in your existing mutual funds schemes. But do not keep much of the funds liquid. Keep your investments staggered over varying maturities. Some investments may be made with the purpose of bequest to your grandchildren and other family members. With higher exemption limits for seniors, keeping tax liability at bay will not be an issue; nevertheless, make the effort to do so.

As you may end up living longer than you expected, plan for medical bills for a longer period. Lastly, keep your Will up-to-date, mentioning the distribution of your wealth among your legal heirs.

Next To Come: Holiday Planning