If you intend to hang your boots and wish to put a pause to your busy life sometime soon, there are certain financial steps you require to undertake in order to ensure a secure financial life post your retirement. If you are an employee you will be entitled for a pension and if you are self employed then you ought to help yourself with your personal savings. Here is what you can do in order to increase the efficiency of your income.
If you are an investor who does not wish to be experiencing a high amount of risk, and have another good 5 years for retirement, you can look towards investing your funds in a balanced fund. Balanced funds generally invest 65%of your funds into equities and the rest in debt. Since you are retiring you can opt for the Systematic Transfer Plan (STP) instead of the Systematic Investment Plan (SIP). There are no changes in the way STPs functions from SIPs. Systematic Transfer Plans (STPs) are basically a great way of minimizing risk and getting good decent returns in long-term. STPs usually help investor secure their returns that have been generated over a period of time from market crashes or from volatile market behavior by reinvesting your funds from equity to debt funds. Thereby safeguarding your returns with may be minimal loses to bear.
Try diversifying your portfolio and give it an edge by investing in gold funds. You can invest in the form of Exchange Traded Funds (ETFs) through your Demat account. If you are depending on the returns generated by these funds, make sure you constantly review them at least in every 3 years so that your returns can be monitored without facing any huge loses. It will not be appropriate for you to borrow debts like personal loans to finance your post retirement needs. A loan will only increase your financial burden if you do not have enough finances to pay it off on a later date. In order to safe guard oneself from huge medical bills, financial advisors urge investors to invest in pure term life cover insurance policies and comprehensive health insurance covers so that your old age is protected from any unwanted debts that can creep up. In this era of rising medical expenses, a medical cover can come very handy in case of any emergencies.
Apart from this, it is very important for you to reduce your exposure in equities to at least a minimum of 30%; this should be done gradually once you are heading close to retirement. To continue relying on the market and expecting a profit every quarter is not impossible since in the eventuality of a market crash you may lose out on a chunk of your investments which is may adversely hit your finances
If you are an investor who is planning for his retirement after 10 years or so, then investing in schemes like Pomis (Post Office Monthly Income Scheme) is advised. This scheme enables you to invest Rs4.50 lakh individually and Rs9 lakh jointly and provides a very good interest rate. Under this scheme, after the investor has invested for about 5-10 years, he/she will be entitled to monthly returns after the maturity of the fund. Opening up a recurring Deposit (RD) to reinvest the monthly interest generated by the fund is also another good option to earn better returns.
However, you must keep in mind that investing in a Post Office Monthly Income Scheme (Pomis) will require you to face a lock in period which is mandated to be for a minimum period of 1 year. At the end of the tenor, you can prematurely withdraw funds from the account at an interest rate of 2% and if you withdraw funds after 3 years but before the maturity, you will be entitled to 1% interest. If you think that you may require funds well before the 3 year lock in period, invest only a part of your funds and keep aside the rest as liquid cash in your Savings Bank account.
You can also consider investing your funds in bank deposits mainly because banks have been providing good interest rates lately, which is not going to be changed in the near future. Apart from the growth in your deposits you will have the flexibility of having liquid cash as and when required since any premature withdrawal does not lead to major cut down in your returns. If in case you want to have certain limited amount of exposure to risk and are willing to invest in equities, try considering investing in Monthly Investment Plans (MIPs) which provide equity exposure of up to 25%.
Opting for a combination of the above said investments can give you balanced monthly returns during your post retirement life where you need not depend on any external sources to finance your requirements.