Which is the Best Investment After Retirement? How to Plan the Investment of Retirement Corpus?
There are several choices available for investing money in India. But the problem is that, investment following retirement has to be done in a specific way.
Hence, the composition of’investment portfolio’ of a retired person differs from several other men and women. What is the difference?
A retired individual plans to include people assets in portfolio that generates regular revenue as yields. Read more on the way to build assets.
The priority of a retired man is dominantly revenue creation . This priority supersedes the demand for capital expansion .
BEFORE & AFTER RETIREMENT
The under infographics explains the gap in priority of a retired individual from other people.
Clarity concerning this difference is vital before investing. Why? Due to absence of this, we frequently take wrong investment decisions. Thus, let us know the difference:
Before Retirement: The priority at this stage of existence is “construction retirement corpus”. In this stage, the person is performing job to create income. The individual can also be investing systematically in expansion based options. Why expansion? Because the risk is not as (job security), and also the available time horizon is more.
Following Retirement: The priority in this stage of life is “constructing a stable revenue source”. What can be the source? A nicely built investment portfolio. The portfolio of a retired person is composed of such investment choices which can generate stable earnings. Read more about investing for monthly revenue .
The initial priority of a retired individual is always income generation, but his/her ideal mixture of priorities can be as shown below. This selection of priorities ultimates shapes his/her investment portfolio.
A nicely built investment portfolio can take care of the above 3 priorities of a retired individual.
But before we dig deeper into the makeup of investment portfolio, let us pause and ask a basic question. What an investment portfolio means to get a retired man?
This portfolio includes a mix of different assets. Proportions where the retirement money is distributed among different investment choices.
A retired individual should not only understand where to spend money, but he/she should also understand “the way to disperse the money among different assets”.
Why to disperse the cash? For the sake of diversification. It is essential. There’s not any hard and fast rule of diversification. An individual must do it based on their own relaxation and requirement. Confused?
Lets know the thought process, it will surely obvious some cloud…
After retirement, people should not speculate or experimentation with their cash. The way to make it?
Wealthy individuals who retire for them repaired income isn’t a priority. They can afford to talk about investment diversification, capital appreciation, equity, growth etc.. But this article is not for such wealthy individuals.
Vast majority of retired guys in India has just handful of savings. Moreover, they are likewise not familiar with investment options, and risks associated with investing. For such people, it’s better to take care of retirement corpus with care.
PREPARATION BEFORE INVESTMENT
Though a separate article is necessary to discuss concerning the preparations required before retirement, but considering its significance, lets touch with this subject briefly:
Collect Funds: Gather all economies (such as EPF, Gratuity, PPF etc) that has been gathered while at job. Lets consider the entire rescue of some typical retired individual in India:
Provident fund — Rs 30Lakhs,
Gratuity — Rs 15 lakhs,
Fixed Deposit — Rs 5 Lakhs,
Share — Rs 3 Lakhs,
Endowment strategy — Rs 3 Lakhs, and
Money — Rs 2 Lakhs.
Total: Rs.58 Lakhs. Idea of accomplishing this exercise is to know just how much one need to dig into the retirement corpus per month to manage expenses. However low is the cost, withdrawing money regularly from retirement finance will finally harm it. Therefore, investment is vital to produce the corpus grow quickly enough, so that regular withdrawals are possible without depleting the corpus (as far as possible). Here’s a typical cost of a retired man in India:
Household expenditure: Rs.21,000/ month.
Other expense: Rs.5,500/month.
Quantify Required Returns: In our case, retirement savings is Rs.58 Lakhs, and yearly cost is Rs 31,500. To be able to create income of Rs 31,500 a month, a return @ 6.5percent p.a. Back in India, a return of 6.5percent is not a hard to generate.
The person will try to split the retirement corpus to eight parts as shown below:
Post Office — Monthly Income Scheme (PO-MIS)
Post Office — Senior Citizen Savings Scheme (PO-SCSS)
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
MIP offered by Fair Funding — yearly dividend plan (MF-MIP)
Balanced Mutual Fund — for capital appreciation
However, TDS will still be deducted. In this case, while filing the income tax returns at the close of the month, income tax refund should be claimed. It is also important to maintain all TDS certification handy whilst filing the income tax returns. To simplify this aspect, find a free online tax calculator to use.
But its yield is low (3.5% p.a. & we want 6.5%). Hence, better would be to maintain only 12 months worth expenditure in savings a/c (for liquidity). Let us explore other investment alternatives to meet priorities. [Within our case — see the above infographic, finance allocation to savings account is limited to 1.7% just ]. Read on best alternative to savings a/c.
Fixed Deposit: Bank’s fixed deposit is also a excellent solution for income generation. But here also, the yield of FD is reduced (6.08% net of TDS & we need 6.5percent ). Hence, better would be to keep only restricted capital in FD. [Within our case — see the aforementioned infographic, finance allocation to FD is limited to 17.2% just ]. Read about the best way to make high interest from FD’s.
Post Office (MIS): Monthly income strategy (MIS) is a tailor made investment plan for retired people. It creates stable earnings. Its interest rate is high @7.6% p.a.. But it also has limitations. The interest of MIS will be blamed only to place office’s economies a/c (POSA). However, POSA doesn’t have ATM & no online banking. Another limitation is related to max investment (Rs 9 lakhs in case of joint accounts with spouse). [In our case — see the aforementioned infographic, fund allocation to PO-MIS is limited to 15.5% just ]. Find out More about Post Office Monthly Income Scheme (MIS) here.
Post office (SCSS): Senior citizen savings scheme (SCSS) is just another tailor made investment strategy for retired men and women. But this also has a limit. Maximum investment is limited to Rs.15 Lakhs (joint accounts with partner ). Banks also offer SCSS. The lock-in period in SCSS is 5 years. Interest rate is high @8.7percent p.a, but net of TDS falls to 7.56percent (paid yearly ). [Within our example — see the above infographic, finance allocation to PO-SCSS & SBI-SCSS is limited to 51.8% just ]. Read about difference between SCSS and PMVVY. Gross return of MIP is great (8 percent p.a), however DDT of 28.84% makes its yield low. Web of DDT yield becomes 5.84%. [Within our example — see the aforementioned infographic, fund allocation to MF-MIP is limited to 6.4% only]. Learn more about MIP’s offered by Fair Funding .
Equity (Balanced Hybrid Fund): There’ll always be a desire to invest for fast capital appreciation. Though for a retired individual, it is not a number one priority. However, to fulfill this urge, it’s better keep a provision. [In our example — see the above infographic, fund allocation to MF-Balanced is limited to 0.9% just ]. Read about investing risk earning & free high yields .
In this guide we found, how to distribute ones retirement corpus in order to generate net returns of 6.5% per annum. This was performed by distributing funds as shown in preceding infographics.
The wiser will be the finance distribution (low risk, just-enough returns), more peace will be determined on the retired individual.
It’s important to lock our savings. Why? To stop it from getting spent needlessly. The way to lock it? By investing and not keeping it free in savings account. But in the soul of investing, an individual has to not take unnecessary risks.
Peter is a journalist, public speaker, and podcast host. He has over 10 years of experience writing about technology and business, finance, technology space since 2017. he is currently writing a book.