F(N)AQ: How Do I Make My Retirement Corpus Last Longer?

Yes, we do agree that creating a well thought and planned retirement corpus is a crucial financial goal for everyone, especially because retirement is inevitable and you need to be prepared for that.?

But, the onset of your retirement life does not reduce the importance of financial planning, as the retirement corpus created by you would still be threatened by factors such as rising inflation, taxes, health costs, and the longevity risk, i.e. the risk of outliving your retirement corpus.?

All this can result in your retirement corpus getting exhausted within your living years, which can put you into financial trouble during your otherwise ’golden period’ of life.

Also Read: 5 Super Financial Resolutions For New Year 2022

Firstly, ditch the commonly received advice that you should redeem or shift your entire equity exposure into less risky instruments like debt funds, bank FD etc upon retirement.?

Remember that these financial instruments usually fail to beat the inflation rates, and the returns for those in the higher tax slabs would be even lesser after deducting the tax from the inflation-adjusted income. Plus, the rising life expectancy and health costs make it a strong case to avoid a complete shift to the less risky debt funds or other fixed-income investments.

So, instead, opt for a staggered shift rather than a complete shift in one go, as this will give higher chances to your remaining corpus to keep benefiting from equities, hence boosting longevity.?

So, first identify your monthly mandatory expenses and short term financial goals pertaining to say, the next two to three years, and then for that amount activate Systematic Transfer Plan (STP) in your equity funds to shift to debt funds. And then activate a systematic withdrawal plan (SWP) in those debt funds to from time to time receive cash flows, like monthly, quarterly etc, to meet your daily expenses and short term financial goals.

What this does is it safeguards your retirement corpus from short term volatility of eq uities, but at the same time lets the remaining equity corpus which you do not require for some years, stay invested and benefit from the returns of equities.

The next step is to manage your retirement scheme proceeds if any.

Also Read: F(N)AQ: How To Be Financially Prepared Before You Start Investing

While many retirees are advised to use their lump-sum retirement proceeds, like gratuity, provident funds or other retirement schemes to buy annuities, such investment instruments yield very low returns and often tend to barely exceed the inflation rates.

So, it's better to estimate your short-term financial goals and mandatory monthly expenses pertaining to the next two to three years, or event up to five years or so, and invest that much amount from your retirement proceeds into high yield bank fixed deposits, or those with relatively higher risk appetite can invest their retirement proceeds in debt funds as well.?

And, the surplus money left should be invested in equity funds based on your risk appetite. This is because equities turn out to be the most suitable asset class over the long term, especially for five years and more. Their returns have usually outperformed both inflation as well as other asset classes by a wide margin over the long term.

Yes. Although your retirement corpus is aimed to cover your post retirement expenses, but still ensure to keep the emergency fund separate.

This will also help in not overburdening or over-relying on your retirement corpus during a financial exigency post-retirement, hence helping increase its longevity.?

Remember, the importance of an adequate emergency fund for a retiree is no less than that for a working individual. In fact, risks emerging from the absence or inadequate emergency fund would be much higher for the retiree, since it would be difficult to fetch loans at that stage for dealing with financial emergencies, whereas redeeming the investments may attract penalties and/or at worse, make you incur losses (in case of market-linked investments).?

That's why ensure you have an emergency fund amounting to at least six to nine times your recurring monthly post retirement expenses, like pharmacy bills, utility bills, rent, grocery, etc. Park this fund in highly liquid financial instruments like high yield savings accounts or you may keep it invested in high interest bank FDs as well.

We all would agree that old age makes us prone to diseases and injuries, right? That's exactly what makes it absolutely necessary to have adequate health insurance in place during retirement years. The absence of it can result in a single hospitalization bill eradicating your lifelong savings and retirement corpus!?

So, if you do not have a health cover, purchase it at the earliest, even if it comes at a higher premium. And if you already have it but want a higher cover, opt for top-ups from your existing health insurer, as the premium charged on top-up health covers would be lower than purchasing an additional health insurance policy.

Although it's best to try and accumulate a retirement corpus as big as possible, and manage it efficiently to avoid falling short of funds during retirement, life’s uncertainties may create such a circumstance. In such scenarios when you have already retired and are in need of funds, there can be two ways of availing a loan, if your family or friends aren't the primary sources of seeking direct financial help.?

First is in the form of a reverse mortgage loan, which is a loan facility that can be an excellent tool for supplementing cash flows of retirees. Herein, you pledge your house property against either a lump sum amount or periodic disbursals spread over the remaining lifetime.?Although the tenure of such loans usually goes up to 15 years, it is extendable till the borrower’s survival as well, subject to the advance value of the pledged house property.?

As far as loan EMI is concerned, the repayment is not triggered either until the borrower’s death or him/her moving out or deciding to sell the pledged house. The loan settlement is usually done either by the lender selling the pledged house or the repayment by the borrower (if alive) or his/her next of kin/heirs without the lender having to sell the property.

Besides this reverse mortgage facility, retirees may opt to go for other loans like personal loan, loan against credit card (if you are a credit card user with disciplined repayment history), gold loan, etc. Many lenders offer personal loans specifically for pensioners as well. Whereas those who do not have a pension or are facing difficulty in taking loan for any reason, can try boosting their eligibility by looping in a younger and earning co applicant like children, sibling etc.