Life is full of uncertainties and the future is unpredictable. But this shouldn’t deter you from making plans for the future. Most working class people, who toil hard to earn and save money, have plans to hang up their boots sometime in future. Retirement is a time every working individual looks forward to, to relax and indulge in recreational activities.
While the idea of retirement sounds enjoyable, the fear of not earning a monthly salary, as well as running out of savings, constantly plagues those who are on the verge of retirement. We’ll tell you how you can ensure a constant flow of money without exhausting your savings post retirement.
- Immediate Annuities
You can invest your savings and Provident Fund (PF) in Immediate Annuities to get a fixed amount of money every month. As the name suggests, you will start reaping benefits immediately after purchasing an Immediate Annuity contract. Stable monthly income will be credited to your account irrespective of any rise or fall in interest rates. This investment ensures a constant flow of money and wipes out the worries of exhausting your savings. In return for a stable income, investors agree that the monthly deposits to their accounts will never increase. The biggest drawback of Immediate Annuity is that once you invest your savings in it, it stays there forever. You lose the freedom to liquidate your money according to the need of the situation. So, once you decide to purchase an Immediate Annuity, there is no looking back.
- Laddered Bonds
A bond is an investment scheme where one invests a lump sum amount and enjoys interest at fixed intervals before getting the principal amount back after maturity. The idea of laddered bonds is to create a staggered ladder of bonds by investing in multiple bonds maturing at different periods. Generally, a bond pays interest twice a year. So by structuring a ladder of bonds maturing at different dates, you can ensure there is a monthly cash flow for the entire year. Once a bond has matured, extend the ladder by investing in a new bond that matures after the existing bonds reach maturity. Thus, a ‘laddered bonds’ structure ensures constant cash flow and low risk of loss due to early maturity of a bond.
Additional Reading: A Note On Tax Saving Bonds
- Strategic Withdrawal
This is one of the simplest methods of ensuring a constant income, as it requires you to systematically calculate and withdraw only the amount you need for a month. Strategic withdrawal doesn’t mean you take out the same amount of money every month. It focuses on calculating the money required for your essential needs and withdrawing only that amount of money. Mutual Funds, Fixed Deposits, etc. are a few investments that allow strategic withdrawal to liquidise your money according to your needs.
Additional Reading: How To Meet Your Goals With Mutual Funds
A Certificate of Deposit or a CD is a banking device, authorised by financial agencies, where a bank provides a certificate stating that you have deposited money with them for a certain period of time. Unlike bonds, you earn interest from a CD when it reaches maturity. The interest rate is locked so that there is no risk of losing money when the CD has matured. Similar to laddered bonds, one needs to strategically invest in multiple CDs maturing at fixed intervals, so that there is a constant flow of money. For example, if a CD matures in six months, make sure you have invested in at least two more CDs that mature in 12 months and 18 months respectively. Once a CD matures, purchase a new CD that matures after the two existing CDs reach maturity. A ladder of CDs can provide financial stability with minimum risks.
- Mix it up
You can even mix it up by investing a part of your savings in all the above-mentioned schemes. This style of variation in investments makes sure that there is a constant flow of income. It also provides protection from losses that may occur due to a fall in interest rates or early maturity, since there are other investments to compensate for it.
Now that you know how to liquidate your money for a stable monthly income without exhausting your savings, you can go ahead and plan your post retirement investments to suit your needs!