You may have spent a good part of your life earning hard so that you can lead a peaceful retired life. Yet, the investment challenges for a retired individual remains aplenty. Diminished income flow and steady rise in price of essentials, higher medical needs and lower risk taking ability all add to the challenges. To top it senior citizens, the world over, are victims of mis-selling incidents. Here are a few simple tips to enable you to lead your retired life peacefully:
1. Emergency kitty
Ensure that you hold a good proportion of your money in liquid instruments to meet medical emergencies. Agreed, that will mean idling way the money in savings bank. But use options such as flexi deposits in your savings bank account, which will sweep excess money from your account into FD and move then back to you savings account when you overdraw. Options such as liquid funds are also good if you wish to build a contingency reserve. They are reasonably safe and can be withdrawn a day after you initiate a redemption transaction.
Ensure that you don’t place all your eggs in one basket. You may think that a bank is very safe or a 60-year old finance company cannot go wrong or an investment is guaranteed. We have had instances of banks going bust and finance companies being strapped for cash because their borrowers defaulted. A guarantee is only as good as the strength of the guarantor. Hence, diversify your investments across banks, post offices, companies, government bonds and mutual funds. Even within banks, do not go overboard on a single bank, especially co-operative banks.
3. Different strokes for different folks
When you invest for your grand child’s future or are investing money on behalf of your children, remember that their need would be ‘wealth creation’ and not ‘income generation’. That means your own risk metric will not apply to them. Take risks that you understand and risks that will reward well in the long term. Consider more regulated and nuanced products such as mutual funds, gold ETFs and debentures in such a case.
4. Go for top-rated instruments
When you invest in company fixed deposits or corporate bonds, stick to top rated (AAA) bonds and deposits. Most companies other than NBFCs (non-banking finance companies) may not disclose their rating as they are not mandated to. But unless you are in the know of how the company/business works, you are better off sticking to rated instruments. Also do not go for very long tenures of over 3-5 years as companies’ fundamentals can change.
5. Insure with care
You should have been done with your insurance in your working life. Closer to retirement of later, if your agent comes up with fancies policies linked to markets, be wary. Besides having high premium, a multiple riders would prevent you from enjoying a worthy plan.
6. Assured return claims
Aside of fixed return products such as deposits, no insurance or mutual fund plan can give you assured fixed returns. There are now advertisements (in public places) of commodity/currency trading that promise assured returns. Pay no attention to these.
These are merely speculative bets.
7. Beware of high returns
If you have not already burnt your fingers in the series of ‘chit fund’ and ‘benefit fund’ scams in the 80s and 90s good for you. Don’t attempt to get hurt now. Remember that high returns are not possible unless your money is deployed in risky ventures. That means there is a good chance that the businesses of the borrowers (from the chit fund) can be risky.
8. Land is a slippery slope
Land is one investment that entails lot of money, lot more risks and very poor/painful redressal mechanism if you are conned. Even if you have large sums, do not get into speculative bets in land, unless you have been doing that for a living. Poor title, lack of computerized records and land grabbing all make this asset class fraught with risks. Don’t forget the farm/land schemes in the 90s that went bust with most people not getting back a penny. The settlements are still pending well after a decade.
9. Retain property
If you bought your own property, retain it for yourself and your spouse during your life span. Let you children enjoy it after your life. Make a will that will specify who will benefit from your assets after your life span.
Even if you are in financial difficulties for running your household, consider a reverse mortgage option of your property with banks. This will provide you with some regular income stream as it’s a scheme that specifically caters to senior citizens.
10. Form a trust for a special child
If you have children with special needs or in general wish to leave a source of regular income for your family, consider forming a trust. Take the help of a lawyer or financial planner to have a trustee and ensure that your child’s need is taken care of, over the beneficiary’s (the child) life span.
In all this do not forget to live life well post retirement. If you have sufficient savings, spend on yourselves well instead of hoarding for the next generation. They would have formed their own kitty sooner or later.
(The author is Ms. Vidya Bala, Head, Mutual Fund Research, at FundsIndia.com)