How to manage post-retirement risks to ensure worry-free retirement – Times Now

Retirement planning

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New Delhi: Often it is seen that people face financial hardship in their retirement due to a mismatch in their post-retirement income and expenses. Sometimes their retirement savings become inadequate to generate the kind of income they need to meet their post-retirement expenses. Some of the biggest risks post retirement are unexpected illness in the family, rising inflation, increase in life expectancy and a sudden drop in equity markets. However, these risks can be managed by proper planning ahead of your retirement. here are few things people on the verge of retirement should do to ensure a worry-free retirement.

1) Assess your financial readiness

If your retirement age is 60 years, then by 55 you should assess your financial readiness for retirement. This can be done by creating a budget within which you will live in retirement. You should try and stick to the budget for a few months before your retirement. It is better to have this assessment at this stage as you can take corrective measures if needed. At this stage, you will have a fair idea of your post-retirement income and if you find that your post-retirement income will not be sufficient to meet your post-retirement expenses you can explore options like postponing your retirement or supplementing retirement income with some post-retirement employment or you may think of cutting some of the expenses to match it with your income after retirement.

2) Invest in inflation-beating instruments

Inflation is the biggest risk, which many do not account for, even if they know that it will erode their post-retirement income, which mostly remains fixed or decreases with the overall drop in interest rate in the economy. As most people park their retirement corpus in fixed interest-bearing instruments of in annuity plans, their income remains fixed but their expenses keep on increasing during the long retired life of around 25 years. In order to beat inflation, financial planners suggest to park 15-30% of your retirement corpus in diversified large-cap equity funds and ensure that you don’t touch this amount for the next 5-7 years and let it grow. 

In the meantime, park five to seven years of retirement expenses in a liquid fund. So that you don’t have to depend on the money parked in the equity mutual funds for the next seven years. If you already have a Public Provident Fund (PPF) account then it can be of immense help during your retirement. As you all know that a PPF account can be extended without contribution for a block of five years after the initial maturity of 15 years, you can use it to earn higher tax-free interest post your retirement on your savings. Also during this extended maturity, you can make one withdrawal in a year but the total withdrawal amount in a block (during the entire five-year period) should not cross 60% of the balance in the account at the commencement of each block. 

For instance, your PPF account matures when you are 50 and at that time the balance lying in your account is Rs 25 lakh. So, without closing your PPF account, you can extend it ( without) twice by a block of five years till you achieve superannuation age. Suppose, at the end of 60 years, the balance lying in your PPF account grows to Rs 50 lakh. Now you can withdraw 60% of this amount, Rs 30 lakh, in five instalments till the age of 65 and the remaining amount will keep on earning interest. Till you exhaust your entire PPF balance, the money parked in equity MF schemes will keep on growing and give you inflation-beating returns. 

3) Buy health insurance

Secondly, have a robust health insurance cover during your young and healthy years when you are earning. This insurance cover should help you even in your post-retirement years,” said Joseph.

Prolonged illnesses, sudden hospitalisation may eat into your retirement corpus and are some of the biggest risks during your retirement. In order to ensure that you don’t have to deep into your retirement savings for medical expenses, you need to have a robust health insurance cover during your young and healthy years when you are earning. This insurance cover should help you even in your post-retirement years.

4) Consolidate financial information

Two-three years ahead of retirement, you need to consolidate information about your financial affairs such as retiral benefits, investments, banking and insurance to get a fair idea of their current position and the gaps in the plan that need to be filled. This is a stage in life when earnings are at a peak and fixed monthly expenses are minimum as most of the big-ticket expenses and responsibilities have been taken care of. So, one should increase his savings as much as he can so that they don’t have to deteriorate their standard of living in retirement due to the shortage of funds. Also, if you have more than 50% of your portfolio parked in equity MFs, then gradually shift your investment in equity funds to liquid funds or short-term debt funds so that you don’t hold more than 30-50% of your total retirement savings in equity MFs. This will ensure that any sudden fall in markets don’t impact your retirement corpus. This switch from equity to debt should be done over a period of three years in a systematic way. 

5) Try to become debt-free

Another most important thing that people on the verge of retirement should do is to try and repay all their debt before retirement. It is never advisable to carry forward your debt post-retirement. Ensure that your home loan if any is completely paid off before your retirement.

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