Managing Retirement Surplus

April 11, 2020

Many people, who move away from active work either on attaining superannuation or optionally have to face many challenges in managing their retirement surplus.

The foremost would be to have a monthly regular income to take care of regular expenses.

We have compiled a list which we believe would be very handy for those who would be looking at creating a regular/retirement income portfolio.

• The first step in managing the retirement surplus is to pay off any outstanding loans either on a car or a house. This would reduce the mental stress when you are retired or not having any regular income.

• The next step is to appropriate amounts for any uncompleted major financial responsibilities like children’s higher education or children’s marriage. The financial products for this would be low volatile ones like fixed deposits or debt mutual funds. Shares, real estate and equity mutual funds could be avoided. In case, gold needs to be accumulated for marriage purpose of children then it is advisable to buy it through Sovereign Gold bonds as they are tax efficient and have no storage/purity risk.

• Next, would be to keep appropriate balances in a savings a/c or liquid mutual funds to manage short term emergencies. Ideally 6 months of mandatory regular expenses (groceries, medical expenses, bills, travel, fuel etc) should be parked here.

• The continuation of an appropriate medical cover is very important at this stage. Choose a medical insurance company which would cover most of the medical expenses till maximum age. Do proper health declaration while filling the proposal form as non-disclosure would render the contract void. If the medical insurance premium is on a higher side, then one can but super top up insurance plans while paying smaller expenses through ones pocket. However, have a proper diet and take good care of your health.

• After managing the above steps, take a re look at your entire financial net worth less your primary residence & gold ornaments with the above adjustments (mentioned in the above steps). This portfolio (after some restructuring) if properly deployed would give you the desired monthly income along with any other monthly pensions/income. This portfolio has to be invested judiciously taking the following factors into consideration:

• Life Expectancy: Plan your finances well because of medical advancement one generally lives for between 75-85 years. This means your finances should last for a very long time i.e. another 25-35 years.

• Inflation: Regular monthly income what you receive now would not be sufficient after a few years because of inflation. Utilize inflation beating products like direct equity portfolio/equity mutual funds in your financial portfolio. Have exposure of roughly 25-35% of your wealth in these assets. Invest gradually so as to reduce the risk of market timing. Have exposure to 10-15 stocks and 5 diversified equity mutual funds.

• Taxation: Paying taxes is good, but avoid taxes through judicious deployment of one’s financial portfolio. Use debt mutual funds in addition to fixed deposits. Invest maximum of Rs 1.50 lakhs per annum to reduce taxable income. Income of Rs 50,000 from fixed deposits is tax exempt for senior citizens. With prudent planning income up to Rs 50,000 per month could be tax free.

• Real estate could be avoided as they would require large resources and it is also illiquid.

• Invest up to 65-75% financial portfolio in safe investments like Bank FDs, Postal MIS, Pradhan Mantri Vaya Vandana Yojana* & Senior Citizen Savings Scheme*. The remaining could be invested between equity and debt mutual funds. Debt Mutual Funds are preferred over FD’s for their tax efficiencies. However, do not over diversify.

• Review your financial portfolio once every 6 months. Restructure, if required.

• Do not invest in high return earning speculative schemes. Get rich quickly schemes generally makes one poor quickly.

• Do not invest in Life Insurance (traditional or ULIPs) as they are costly and do not serve any purpose for your financial goals.

• In case the regular income is not sufficient from the capital deployed, then do not hesitate to draw into the capital. Do not live poor and die rich.

• Maintain your lifestyle and do not drastically increase the same.

• If cash flows from the portfolio are not sufficient, then one can look at Reverse mortgage of the primary residence or can move to a smaller place by exiting the current residence.

• Have your nomination across all your investments and have a proper registered will in place. Make a list of all your finances and share this with at least one close member in the family. Have control on your money till the last stage.

• Enjoy your money and let not money management give you more stress.

** Applicable only to senior citizens aged above 60 years.

People who find the above steps confusing and complicated can partner with a competent and well regulated financial planners.

Happy Retirement!!



By Naveen Julian Rego
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Comment on this article

  • R.Bhandarkar, Mangaluru

    Wed, Apr 15 2020

    My honest feeling ...
    Managing is OK but can we survive is the Million Dollar Question !

  • Joseph, Mumbai

    Mon, Apr 13 2020

    Kindly also enlighten on investing in the GOI/G-Sec Bonds and also in PSU Bonds and State Bonds which yield around 8%+ returns as the Senior Citizens Scheme the rate is reduced drastically to 7.2 % from 8.6% now.

    Also investing some amounts in reputed cooperative Banks where you get around 8% interest at present and as the DICGCI has raised insurance cover on deposits to Rs. 5 lakhs now,

    Moreover, it is certainly dangerous to keep all eggs in one basket as most people do for half percent extra interest and repent later.

  • Francis J Martis, Barkur/USA

    Sat, Apr 11 2020

    I am 68 and close to retire from work. Children educated and married, planning to live 3-6 months in India and 6 months in US. Have investment of $ 400,000. 00 plus another $ 50,000. Have life insurance policies too, overall within $ 500,000.00 have own house. Most of money invested in stocks , funds &
    annuities. On hand 25,000.00 expenses in US is high - monthly around 3000 to 4000. Both under medicare plans. |Social security comes about 3000.00 monthly - Advise how should I plan investing for the future. I don't want to rely on my children at all though they are wealthy.

  • francis lobo, Mangalore

    Sat, Apr 11 2020

    Very good information . I feel you should do a similar article for NRI who returns after retirement as people may not be knowing about the impact on their earnings and deposits as they had nontaxable income earlier to return to India.

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