Mr Mani, our senior vice president heading the Finance team, is retiring next week. His entire team and members of the other department had gathered for his farewell. Speeches were being given in his honour. He also shared his experience of working with the company. We were all eagerly listening to his last minute teachings for us. Out of curiosity, a person from the marketing department asked him how he plans to manage his expenses after retirement given the lack of regular income. Mr. Mani had a calm smile on his face and the following to share.
Managing finance and taking care of the routine expenses is one of the biggest fears a retiring person has. And why not, considering the rate at which the inflation is increasing, common person is bound to have those apprehensions. However the basics of managing money still remain the same.
First and foremost a contingency fund needs to be maintained. This should be equal to a reserve of 3-6 months of monthly expenses. If the contingency fund is already maintained, it needs to be revisited as the expenses might change after retirement. A part of this needs to be kept as cash at home in case of emergencies and the balance in assets that can be easily converted to cash.
Most of the working people have health cover provided by their employer, however the same might cease to continue upon retirement. Hence it is absolutely necessary to obtain an individual health cover independent of the employers cover. This should be done 2-3 years prior to retirement. In case independent policy is not taken, policy covering senior citizens should be opted for upon retirement. If all of this is not possible, certain amount should be kept aside as corpus for medical requirements.
Once retired, there is no need for life insurance. Thus depending on the situation, one must decide either to hold on or to do away with the policies.
Upon retirement, one may receive compensation in the form of gratuity, provident fund money, super-annuation, pension, etc. However everyone has a common fear; whether the corpus thus received will be sufficient or not.
Going further he stated that the needs of retirees or senior citizens are different when it comes to their corpus. One would need the accumulated corpus to generate regular returns or provide liquidity in case lumpsum money is required. Further some need the corpus to grow at a rate higher than inflation so that the funds are available for a longer duration.
The corpus thus received should be invested in a manner that a part of it generates regular income; certain portion should be kept in products that can be easily converted into cash without incurring additional cost or by incurring minimal cost and the balance in products that will provide returns that beat inflation.
Depending on individual needs one can consider products like fixed deposits, senior citizen savings schemes, post office monthly income schemes, debt oriented and equity oriented mutual funds, etc. A combination of few or all of these will enable balanced portfolio.
One another product available is that of reverse mortgage. As the name suggests, this is a product where the home owner mortgages the house to get regular income. Thus senior citizens who own a house can avail the benefits of this product. Upon the death of the owner, the house is sold to pay off the mortgage. In some cases the heirs of the deceased person have the right to keep the house by paying off the mortgage.
Sharing further he continued that a person not only faces financial changes, but also undergoes an emotional transition during this retirement phase. I will no longer continue to remain Mani Sir as you all lovingly call me or Mr. Mani, Sr. VP Finance. I shall be just Mr. Mani; and this is the biggest transition. Emotionally one needs to be ready to accept this change.
All of us think that if we tackle the financial aspect, we can have a comfortable retirement. That is absolutely true, however to have a peaceful retirement we need to embrace the emotional change as well. Having a habit of working full time, to suddenly no work at all can make a person go crazy. Pick up a hobby, learn something new, if health permits take up social work, or if need be take up a second career. One should plan things that will keep him/her busy for some time during the day.
There was a huge applause when he completed. Knowing his financial acumen and discipline, I was certain that he would have planned for his retirement. Everyone who attended his farewell would have learnt something from Mani Sir. As for me I am sure to remember his teachings and implement when I have to retire.
(Ms. Foram Shah is a Certified Financial Planner and can be reached at foramrs@gmail.com)
