Monday, May 4, 2009


Have you recently retired or are about to retire in near future? Then in that case chances are that you would have got or will get a large sum of money in lump sum as your retirement proceeds from the company . You will get your Provident fund, gratuity proceeds,insurance maturity amount, Mutual fund money etc which will add upto a significant amount. This amount is also very significant because this is the last time you will get money from your company and for all practical purposes your last tranche of own earned money. And if you are not going to get pension or are going to get insufficient pension, then you will have to depend on this money for the rest of your life. This is a daunting task and hence one needs to be very careful and methodical with ones retirement money. Now let me first state few strict no- no for retirement money.

1. Please do not consider your retirement proceeds as windfall gain. Rather treat each penny as your last penny in this world.

2. Please do not go on spending binge on fulfilling your long cherished dream of foreign trip or buying that second luxury car . This is not to say that retired people should not buy luxury cars or should not travel abroad etc. If they want they can do all of this , but, this should be done with the money they receive as returns from the investment that they will make out of their retirement proceeds that they get from the company.

3.Dont just plan for your normal expenses of running the household, old age comes with lot of medical problems and as such please factor medical expenses which will be major part of your overall expenses in your monthly or annual budget.

4. Never start a business with your retirement money if you have been a salaried person all your life.Reason being that being first timer at business chances of success are less and even if you have seasoned businessman to help you out , the chances of success are less than 50%. And that's far too risk to take with your money at this stage.
Now,that you are clear as to what you should not do with your money that you get post retirement, lets also understand the things that you must do. But before that, let us understand your needs and priorities with respect to money after retirement.The various needs of a retired person are as under:-

1. Regular monthly income - If you have been used to getting paychecks at the end of every month, chances are that you will need to have some sort of income coming in every month for you to live your life without any disruption. The amount of money can be less or more than current paycheck ,depending on your retirement corpus,but, you will need regular income every month, nonetheless.

2. Safety of your investments - First and foremost consideration for a retired person, while investing money, should be the safety of his investment and not the returns generated out of it. The reason is that since the person's risk appetite is very low(as he cant afford to loose any money out of risk taking investments) , the risky investment is not the right option. The investment should be made where the investments are fully secured. This might result in moderate or lower returns but that should be fine.

3. Hedge against inflation- One of the biggest risk facing all the retired people is the risk of inflation. Inflation eats away the purchasing power of the money over a period of time. With increasing life expectancy, this risk of inflation has become even more serious for retired people than it was lets say 50 years ago. Hence a retired person needs to plan for this inflation as well while deciding on his investments.

Where should you invest your money considering your needs? Considering your needs of safety of investment,regular income and hedge against inflation, I think you will do well to invest your money in the following instruments:-

1. Post Office Monthly Income Scheme (POMIS) - In order to get monthly income, you can invest in POMIS which gives you a guaranteed return of 8% payable monthly. This is a scheme run by government backed post offices in India and as such they are fully safe and guaranteed.The tenure of the scheme is for 6 years and the minimum amount to invest is RS 1000 or in multiples thereof. The maximum amount is Rs 4.5 lakhs for single account and Rs 9lakhs for joint account.For more information on POMIS click here .

2.Senior Citizens savings scheme - Since you can invest a maximum of Rs 9 lakhs only in POMIS , you should also invest in Senior Citizens Savings Scheme launched by Central Governemnt. This scheme, as the name suggests, is open only for senior citizens (age 60 or more) and gives better returns than POMIS at 9% pa compounded quarterly.One can invest a maximum of RS 15 lakhs in this scheme.For more on this click here .

3.Balanced Mutual fund - With POMIS and Senior Citizen Savings Scheme, you would have taken care of safety and regular income needs of your retired life. And for guarding against the risk of inflation, you need to look at balanced mutual funds . Balanced mutual funds are the funds which invest part of the money in corporate bonds and debts and part of the money in stocks. These provide opportunity to do well in case the market does well. Generally in inflationary economy the market does well ,the recent example being the bull run of 2002-2008 which was also accompanied by relatively higher inflation. As such balanced mutual funds will provide you with the cushion against inflation. But, a word of caution here is that you must not invest more than 20% of your overall corpus in balanced mutual funds. Also please invest in only 5 star rated balanced mutual funds by
I think with these 3 options , all your needs will be taken care of and then you can plan for your holiday in Bali or cruise in your next Jaguar.


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