Let's today talk about a segment of our society who lose their money power after attaining a certain age. Yes, I am talking about salaried class who retire from active service and suddenly financial planning issues take a centerstage in their lives. All of us know life after retirement mainly revolves around financial management. After retiring from active service, a person finds it difficult to maintain the same lifestyle and even at times struggles to make both ends meet.
Precisely, post retirement financial independence becomes more significant in these times. There are innumerable examples in place when children do not fend for their retired parents – whatever the compulsions. Moreover, post retirement, parents may also find it embarrassing to ask for financial support from children to meet their needs.
So what's important for the retirees is to plan investment of their retirement benefits in such a way that they ensure multiplication of their investment as well as easy access to their funds at the time of need.
Financial experts have been talking a lot about the ways and means of getting retirement funds in place. But very little is preached on how to invest retirement funds. Most of the retirees are largely dependent on retirement funds and deployment of these funds in appropriate investment baskets holds key to their future income, which simultaneously means regular income. Here it assumes significance that retirement funds are invested in instruments that are more liquid to meet any untoward emergency.
There are several safe investment options through which a retired person can multiply his investment and also have regular income. Schemes like Senior Citizens Savings Scheme (SCSS), Post Office Monthly Income Scheme (POMIS), Post Office Time Deposit (POTD), Fixed Deposits (FD), Monthly Income Plans (MIP), other government backed instruments etc are some the safe haven investment schemes.
A retiree can have a mix of investment avenues to ensure safety of his funds and also have hassle free access to his money at the time of need. For example, despite having monthly pension a retiree can additionally ensure regular income. For this he can investment majority portion of his retirement fund into Senior Citizen Savings Scheme (SCSS) and fixed deposits. A retiree can space out his/her investments in such a way that he/she receive interest payment every month.
In modern financial planning, aiming hefty profits in the equity (share) market has become one of the preferred investment avenues of even retirees. How much stock should retirees own?Conventionally investors should reduce their equity holdings as they get near and into retirement and shift toward safer, fixed-income investments. The retirees lose their risk capacity and cannot recover from losses as time is not on their side.
To be precise, for a retiree, the time is not now to make desperation bets. Safety of funds lies in taking less risk and be contended with lower returns. When in equity market, ensure a mix of stocks and bonds. Don't overlook a small amount of cash, too. Investment in 'hard assets' like real estate or gold is generally not fruitful for retirement accounts.
One of the biggest mistakes that retirees commit with the fund is that in order to keep their accumulated money safe, they tend to go for long-term schemes. At the time of need, for example to meet emergency medical expenses, these long term schemes deny them access to their money invested in the scheme. So it's important to choose an investment option which has liquidity. At this age, it is important to invest in a manner that you have money available at all times. Also, at this stage, the capacity to take risk with one's investments is low. That's why retirement planning has become synonymous with investing in avenues with guaranteed and secure returns.
So, when investing retirement funds, don't opt for an investment instrument without understanding it. When investing, see how easily you can access the money when needed. Always have a regular review of your post-retirement investment decisions and see if they are in line with each other.
The basic purpose of all this discussed above is to help the retirees to manage their retirement fund with some rules, and let their retired life be the golden period of their lives. With a proper financial planning they can ensure sustainable flow of income and maintain a proper standard of living.
(The views are of the author & not that of the institution he works for)