Majority of retired men in PSU has only handful of savings. They may not be conversant with investment options and risks associated with investing. Thus, it is of absolute importance to invest retirement money carefully. Every paisa of retirement money invested properly gives huge confidence to the family. Investment must be low on risk and must generate fixed income.
While retiring, it is advised to recall those funds/loans that was given to the family/friends and consider selling some assets, that one thinks, must be liquidated to add-up to the retirement corpus. Remember, every Rupee added to retirement corpus is very precious. Stepwise plans are elucidated below:
Step #1: Estimate Savings –Retirement Corpus
Let’s look at the total saving of a typical retired person:
| Sl. | Retirement Savings | Rs./Lakh |
|---|---|---|
| 1 | Provident fund | 35 |
| 2 | Gratuity | 12 |
| 3 | Leave Encashment | 5 |
| 4 | Fixed Deposit | 5 |
| 5 | Share | 3 |
| 6 | Endowment plan | 3 |
| 7 | Cash | 2 |
| Total | 65 |
Adding up all these savings, it amounts to Rs 65 Lakhs.
| Sl. | Monthly Expenses | Rs. |
|---|---|---|
| 1 | Grocery | 3200 |
| 2 | Vegetables | 2800 |
| 3 | Milk | 1000 |
| 4 | Cooking Gas | 500 |
| 5 | Payment to Maid | 2500 |
| 6 | Medical Insurance Premium/Medicines | 3000 |
| 7 | Electricity Bill | 2000 |
| 8 | Water Bill | 500 |
| 9 | Internet Bill | 1000 |
| 10 | Phone Bill | 1000 |
| 11 | Car Wash | 500 |
| 12 | Society Maint. Bill | 2000 |
| 13 | Car Maintenance | 1500 |
| 14 | Car Fuel | 1000 |
| 15 | Car Insurance | 1000 |
| 16 | Property Tax | 500 |
| 17 | Social /Movie Expenses | 2500 |
| 18 | Misc. Expenses | 7500 |
| 19 | Income Tax | 2000 |
| Total | 36000 |
In my example, adding all expenses, it amounts to Rs 36,000/month. [Note: These expenses have been considered just as an example. I will request my readers to tune the values and expense heads as per their needs]
Step #3: Quantify what return is necessary
In our example, retirement savings is Rs 65 Lakhs and monthly expense is Rs 36,000. In order to generate Rs 36,000 per month from savings of Rs 65 lakhs, return @ 6.65% per annum is required.
Step #4: Quantify what return is necessary
I will suggest the person to divided the retirement money into seven parts as follows:
1. Savings accounts :SBI Multi Option Deposit Scheme (MODS)Savings A/c
2. Pradhan Mantri Vaya Vandana Yojana (PMVVY)
3. Fixed Deposit (Union Bank of India/IDFC Bank /Federal Bank)
4. Post Office – Monthly Income Scheme (PO-MIS)
5. Post Office & SBI – Senior Citizen Savings Scheme (PO-SCSS, SBI-SCSS)
6. MIP offered by Mutual Funds – monthly dividend plan (MF-MIP)
7. Balanced Mutual Fund – for capital appreciation
Note : (a) Depending on fund requirement and risk appetite, one can select out of the above investment options to invest retirement money.
(b) For senior citizens, no income tax is applicable if annual income is less than Rs.3.0 lakhs. But TDS will still be deducted. In this case, while filing the income tax returns at the end of the month, income tax refund should be claimed. It is also important to keep all TDS certificate handy while
Conclusion
It is important to lock our savings. Locking savings means investing it and not keeping it free in savings account. If this is not done, the money gets spent needlessly. What I suggest here is that, one must prepare an excel sheet for self, similar to what is shown in the above graphic.
Idea of this excel sheet should be to play with the numbers. Distribute your retirement funds in such a way that your monthly income requirement is met.
The proportion of fund distribution shown in above graphics is just for an example. Depending upon ones “retirement corpus” and “expense requirements“, one must do the fund distribution to generate enough income.
For sure the returns will be less, but at least the corpus will be safe.
There is nothing more important in old age than good health and peace of mind.
Note : This article is not meant for wealthy individuals who retire very rich. For such individuals, fixed income is not a priority. They can afford to talk about investment diversification, capital appreciation, equity investment etc.