Recently Retired? Here’s what you need to do

If you’ve recently retired, or are about to, you’ve probably got a hundred questions swimming about in your mind right now! Have I saved enough? What if my money runs out? Should I invest aggressively and aim for high returns, or play it safe instead? Should I use up my resources, or aim to bequeath some portion of it to my heirs? Should I try to find some part time work? The list is endless… and sometimes frightening! Here are a few things for you to do right away.

Take Stock of What You’ve Got

First things first – you need to take stock of everything you own. Collate all your holdings together – your equity shares, mutual funds, life insurance policies, real estate, health insurance plans et al. Draw up the details of your liabilities as well. Knowing exactly how much you own, and in what asset classes, is vital at this stage. This is a good time to take stock of your expected earnings by way of your pension, rentals, or incomes from annuity plans as well. All these need to be considered while drawing up a retirement cash flow table that is both useful and realistic.

Sure, Go ahead and de-risk – But Not Excessively!

Here’s a thought: A large chunk of your post retirement portfolio is likely to have a time horizon of anything from 15 to 25 years. Isn’t that a fantastic time horizon for an equity investment? Here’s a follow up thought: the difference between an 8% return on your portfolio and a 10% return on your portfolio can mean a 10% difference in your post retirement monthly income. There’s a lot you could do with 10% extra at this stage in your life; therefore, this is a risk worth taking. Basically – even post retirement, Equity Mutual Funds Sahi Hai! Don’t close yourself out to them.

Aim to keep between 20-30% of your post retirement assets in high growth investments such as equity mutual funds. Just make sure you stagger your entry by way of STP’s, and that you don’t’ fall prey to your speculative instincts and try to time your entries and exits; that’s fraught with risk and could potentially wipe you clean. Be an investor, not a trader.

A Cash Flow Table is Critical!

A well-constructed retirement cash flow table will take into account your currently provisioned monthly income, inflation, expected returns and expected lifespan. You may also want to set a floor value target for your liquid corpus – a safety net of sorts. The cash flow table should also take into account the approximate value of annual drawings for leisure trips and other fun activities. A poorly constructed cash flow table (one that we see all too often!) is one that maintains a uniform drawing amount throughout your retirement age with the hope of ‘preserving’ your corpus. It just isn’t realistic to assume that you’ll be able to live off Rs. 50,000 per month 10 years later, if that’s the amount you require today. You’ll need to factor in the big bad wolf called inflation!

Lump Sum Received – Now What?

It’s very likely that you’ll enter your retirement with a sizeable lump sum corpus that you’ve accumulated through years of Retirement Planning efforts. The question of “what to do with this money” has led to significant consternation for many! Never before has a time of windfall also been such a confusing one.

Let’s start with what not to do – do not buy an annuity with this money. Annuities are low yielding, tax inefficient products that are also ‘no turning back’ in nature. Don’t fall into the trap.

You may end up spending a fair bit of time deciding what to do with your hard won savings. Make sure you don’t leave these funds lying idle in the meantime – remember, for short term investments, liquid mutual funds sahi hai!

Locking in all your money (or a large chunk of it) in a single property isn’t a good idea either. Keep in mind the associated costs of owning a property, the poor rental yields and the hassles associated with tenancy, in general. Do you want to subject yourself to them?

The best solution? Combine Hybrid Mutual Funds with Debt Mutual Funds, and start an SWP (Systematic Withdrawal Plan) creating a synthetic income that comes into your bank account each month.

Health Insurance

Increased Healthcare Costs could burn some deep holes in your pocket post retirement. If you haven’t got a policy running already, you might want to take one. Bear in mind that it’s likely to be frightfully expensive (especially if you have pre-existing conditions). In general, it’s a good practice to take out separate policies for yourself and your spouse in your retired years. A floating one may just be prohibitively costly.

Counterintuitively, there may be some situations where taking a health insurance won’t really make sense in your retirement years; simply from a cost-benefit standpoint. For instance, a 65-year-old with pre-existing conditions such as diabetes or hypertension may need to pay Rs. 40,000- Rs. 50,000 per year or more for a 5 Lac cover. Whether or not this “one in ten” risk is worth bearing or transferring, is a subjective call. If you’ve got sufficient assets to cover this 5 Lac, you may just want to skip it – especially if there’s a hefty waiting period involved. Instead, you could utilize part of your lump sum corpus as a ‘medical emergency’ fund, parking it away in a safe, load free, easy to liquidate debt mutual fund that grows at 7-9% per annum.