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First review your overall finances. See if you have enough liquidity and adequate health cover. Check for any financial goals that may be still left. See if you would like to make an estate plan, invest in yourself or contribute to a social cause. If you still have funds left, check your risk tolerance, try to leverage equity and go for the best alternatives on the Fixed Income avenues.
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So you are a Senior Citizen with some extra money? Wow, that’s impressive, now days. You can go for a dream vacation, gift money to your grandchildren, buy a senior citizen friendly gadget or just call for a big party. But then, as usual, we like to take a structured approach. Let’s give you few tips on how you can utilize this surplus:
Do you have enough liquidity? Do you get adequate cash flow from your retirement corpus or does it vary? Based on how you get the returns from your retirement portfolio, you may need a corpus for 3 to 12 months of your monthly expenditure. So, accordingly, first utilize the extra funds for this purpose. You can invest in FDs with Senior Citizen Rates or go for Liquid MFs.
Do you have an adequate Health Cover? Based on your health situation and existing health cover, you may need to invest in additional health cover. It depends on your specific situation but generally we recommend a family floater of at least Rs. 15 Lakhs for a Retired Couple. It may be a good idea to spend on preventive health care.
What about your Financial Goals? You may not have a significant financial liability or a financial goal remaining now. But think through your wish list. Ask your spouse. Do you need to save for a dream vacation? Are you expecting a grandchild and would you need to spend money there? Would you like to contribute seed funding and let your children take the loan to buy the house? So review your financial goals, liabilities and aspirations and see what is feasible.
Would you like to make an estate plan? If yes, then invest the surplus funds in long term asset class for growth opportunities. It may be a good idea to hire an estate planning professional and make a plan.
Invest in yourself. You may like to work part time and create a regular income, additionally. So see if you can take up any courses that will help you to market yourself better. Learn a new skill, go take up a leadership course or attend a decent training.
Consider a social cause. Consider repaying to society or community givebacks in your religious or professional area. See if you can join hands with an NGO working on your preferred social cause and if you like what they do, you may like to donate some funds to them.
Thought through all these options and you still have surplus money to invest? Alright, then here we go.
Do you have enough liquidity? Do you get adequate cash flow from your retirement corpus or does it vary? Based on how you get the returns from your retirement portfolio, you may need a corpus for 3 to 12 months of your monthly expenditure. So, accordingly, first utilize the extra funds for this purpose. You can invest in FDs with Senior Citizen Rates or go for Liquid MFs.
Do you have an adequate Health Cover? Based on your health situation and existing health cover, you may need to invest in additional health cover. It depends on your specific situation but generally we recommend a family floater of at least Rs. 15 Lakhs for a Retired Couple. It may be a good idea to spend on preventive health care.
What about your Financial Goals? You may not have a significant financial liability or a financial goal remaining now. But think through your wish list. Ask your spouse. Do you need to save for a dream vacation? Are you expecting a grandchild and would you need to spend money there? Would you like to contribute seed funding and let your children take the loan to buy the house? So review your financial goals, liabilities and aspirations and see what is feasible.
Would you like to make an estate plan? If yes, then invest the surplus funds in long term asset class for growth opportunities. It may be a good idea to hire an estate planning professional and make a plan.
Invest in yourself. You may like to work part time and create a regular income, additionally. So see if you can take up any courses that will help you to market yourself better. Learn a new skill, go take up a leadership course or attend a decent training.
Consider a social cause. Consider repaying to society or community givebacks in your religious or professional area. See if you can join hands with an NGO working on your preferred social cause and if you like what they do, you may like to donate some funds to them.
Thought through all these options and you still have surplus money to invest? Alright, then here we go.
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Before you utilize the surplus funds, it is important you take an overall look at your finances and make the best possible use of these surplus funds.
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First, assess your Risk Appetite: First, use a psychometric test on internet or ask your Financial Planner for conducting a Risk Assessment exercise. This will give an idea of your risk tolerance. Based on this, you could take a position in growth oriented assets like Equity MFs which generate decent returns in the long term but can be volatile in the short term.
You must Leverage Equity: It’s hard for anyone to stay away from Equity, we believe. This is likely to generate best performance on a real returns basis, in the long run. So to beat inflation, you must take some exposure to Equity through MFs, based on your risk appetite. Consider investing in Large Cap funds that invest predominantly in Bluechip stocks. If you like to tone down the aggression, then look at Hybrid MFs with Aggressive Equity component. If not, then we recommend you to at least look at Hybrid MFs with Aggressive Debt component. These will have a minor component of Equity that is likely to provide a higher ROI, overall. In retirement stage, after initial 10-15 years, the corpus starts to drop as inflation catches up. If you use these 10-15 years to invest in Diversified Large Cap Equity MFs, then you may be able to build a significant corpus that will help you in later years.
Fixed Income Avenues: Well, you could consider Senior Citizen Savings Scheme, Post Office MIS, Fixed Deposits, Tax Free Bonds or Debt MFs giving regular income. For Fixed Deposit, consider splitting the corpus equally between Nationalized Bank FDs and Corporate FDs with high rating. For Post Office savings, keep in mind the physical visit and other logistics. Prefer online facilities so that you could manage it even remotely. If you like to invest regularly, then see if you like the ‘Step Ladder” approach. Here, you can invest say Rs. 5,000 PM in a 1 Year FD. From 13th month, your investment will double as the earlier FD would have also matured. This way, you can build a sizable corpus over a period of time. Based on your overall income, keep the tax implications in mind while you make the investment.
You must Leverage Equity: It’s hard for anyone to stay away from Equity, we believe. This is likely to generate best performance on a real returns basis, in the long run. So to beat inflation, you must take some exposure to Equity through MFs, based on your risk appetite. Consider investing in Large Cap funds that invest predominantly in Bluechip stocks. If you like to tone down the aggression, then look at Hybrid MFs with Aggressive Equity component. If not, then we recommend you to at least look at Hybrid MFs with Aggressive Debt component. These will have a minor component of Equity that is likely to provide a higher ROI, overall. In retirement stage, after initial 10-15 years, the corpus starts to drop as inflation catches up. If you use these 10-15 years to invest in Diversified Large Cap Equity MFs, then you may be able to build a significant corpus that will help you in later years.
Fixed Income Avenues: Well, you could consider Senior Citizen Savings Scheme, Post Office MIS, Fixed Deposits, Tax Free Bonds or Debt MFs giving regular income. For Fixed Deposit, consider splitting the corpus equally between Nationalized Bank FDs and Corporate FDs with high rating. For Post Office savings, keep in mind the physical visit and other logistics. Prefer online facilities so that you could manage it even remotely. If you like to invest regularly, then see if you like the ‘Step Ladder” approach. Here, you can invest say Rs. 5,000 PM in a 1 Year FD. From 13th month, your investment will double as the earlier FD would have also matured. This way, you can build a sizable corpus over a period of time. Based on your overall income, keep the tax implications in mind while you make the investment.
Notes
- This article has been originally written for FPGI and published here on 4-Dec-2013
- The Financial Planners’ Guild, India (FPGI) is an association of select Financial Planners to create awareness about Financial Planning among the public, promote professional excellence and ensure high quality practice standards
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