5
tips to secure your retirement corpus
Most people fail to save adequately for retirement
since the goal seems to be in the distant future.
However, if you want to build a sizeable retirement
corpus, you must start early and review your
portfolio regularly.
1. Fix Corpus, choose investment avenue
As with any goal, the first step is to calculate the
amount you want in the given time. This will depend on your current lifestyle
and the number of years for which you want an income after retirement. Since
building a retirement corpus is a long-term goal, your investments will vary
accordingly, and the earlier you start, the better it is. So, at 35 years, if your monthly expense is Rs,
50,000 and you want to maintain this level for 15 years after retirement, you
will have to invest Rs. 29,112 a month ( at an annualised return of 10% and
inflation rate of 6%). However, a 45 year-old will have to invest Rs. 93,196,
while a 25-year-old will have to invest only Rs. 10,174 a month. If you
start saving early, ensure that at least 75% of the monthly investment is in
equity. For the debt portion, you can depend on your monthly contribution to
EPF and investment in the PPF. If three-fourths of a portfolio in equity is too
risky for you, invest about 30% of your surplus in debt mutual funds. Review
the portfolio regularly to ensure your investments is on track.
2.
Repay debt before you retire
When you retire, chances are that you will have no
regular income. In such a scenario, it is important that you are not stuck with
any loan repayments as these will deplete your savings fast. So, if you’ve
taken a home loan, make sure that you repay the entire amount before you hang
up your boots, even if it means paying a higher EMI to reduce the tenure. In
the case of insurance, there will be few policies that will be mandatory even
after retirement, such as car insurance, but for other insurance like a health
plan, ensure that you buy these early, because the older you are, the higher
the premium that you will be required to pay.
3.
Tweak your portfolio
Investing in equity is important for creating a
retirement corpus as it gives good returns. However, as you shift closer to
sunset years, reduce the equity portion and increase debt in your portfolio.
This is essential because preservation of your corpus becomes more important
than its appreciation. So, if you start investing at 35 years, 75% of your
portfolio could be in equity, but at least five years before you retire, equity
should not comprise over 40% of the portfolio. You can either use systematic
withdrawal plans to shift the money from equity to debt instruments, or move a
sizeable part of corpus of bank deposits. However, just because you are
retiring does not mean that you have to give up on equity entirely; invest
15-20% of your portfolio in equity funds.
4.
Build a contingency fund
A medical emergency can cripple the best of finances,
and for retirees, it could be disastrous. Besides, there are very few health
insurance options for retirees, and the ones that are available, are expensive
or offer small covers. In fact, most health insurance plans end at the time of
retirement. It is worse for people who depend on the health plans provided by
their employers during their working lives. It’s best to buy a health plan
early, but apart from this, you must also keep a contingency fund, usually 5%
of the total corpus built, for medical emergencies. This should be put in a
liquid fund so that it is available readily.
5.
Bank on reverse mortgage
The best laid plans can go awry. Whether it’s a child’s
higher education or a medical exigency, you may suddenly find yourself short of
the planned retirement corpus. If you find yourself in such a situation, and
own a house, the safest way to get a regular stream of income is to reverse
mortgage it. Under this scheme, home owners above 60 years of age can convert a
part of their self-owned home into income without having to sell it. The bank
calculates the value of the house and fixes a percentage of its current value
as loan amount. This is based on parameters, such as the likely lifespan of the
senior citizen and his spouse. Typically, the loan amount is 60-70% of the
market value of the property, which will earn you a good income. After you and
your spouse die, the house is sold by the bank to recover the loan amount, and
the balance is given to your heirs. Alternatively, your heirs could buy the
house from the bank.
Source by ET
Best Regards,
Hirannya Financial Planners
