Be Wise with the Corpus

Print Edition: October 2011

Ranjeet S Mudholkar, Vice-chairman and CEO, Financial Planning Standards Board India
A retirement corpus must account for several factors, such as the duration the corpus must last, portion to be bequeathed, post-retirement lifestyle, health expenses, the inflation rate and even returns expected from investments made after retirement.

In fact, investing money set aside for retirement must be in such asset classes and in such proportions that the corpus can be sustained for your lifetime. Once the proportion is decided, you have to segregate the corpus into three major parts.

The first and the most important part is the selection of steady income investments, such as an annuity product or bank fixed deposits. Such vehicles assure a fixed income over the product's duration while ensuring the safety and return of capital (except the annuity product).

The corpus set aside for annuity gives a steady income for a specified period (or for life) and the corpus is used to generate this income.

Though real estate investments do generate an income and appreciate in the long term to beat inflation, there are a drawbacks as well. It would be difficult to sell property in a hurry for cash and transparency issues are always present.
Along with this, a significant proportion of the corpus should be invested in debt instruments that provide an income, such as mutual fund monthly income plans, corporate bonds and debentures and government securities.

Reverse Mortgage house for regular income during retirement

A small amount may also be invested in equity-oriented products to obtain inflation beating returns. Investment in precious metals also helps as it hedges inflation and there is the possibility of gaining during spurts in prices of gold and silver.

The third category of investment, though rarely used, is property. The idea behind buying property after retirement is to supplement your income. An investment in property post retirement, though big ticket, must be taken from your corpus and should not be a loan.

How to select a retirement plan

Though real estate investments do generate an income and appreciate in the long term to beat inflation, there are a drawbacks as well. It would be difficult to sell property in a hurry if there is need for cash. Moreover, regulatory and transparency issues in the sector also pose risks to liquidity and jeopardise the investment.

Ideally, one should invest in real estate five to ten years before retirement. A loan will also be readily available, which has tax benefits during the years you're earning the most. In case of a shortfall in income after retirement, reverse mortgaging your house and property (current age requirement is over 60 years) can substitute an annuity plan while the owner continues to occupy the place.

It is never too late to continue learning or developing new skills, be it a supplementing degree or new qualification. This would not only keep you occupied, but also help develop an occupation. Starting a small business is also an option, which should be reasonably safe.

The critical evaluation of the factors relevant to a retired couple in view of the technical and legal aspects involved requires the services of a qualified professional, such as a certified financial planner.

Such professionals will ensure optimal marshalling of all resources to assure sufficient lifelong income for the client without taking undue risks. They will also leave avenues for liquidity and help in estate planning.

Ranjeet S Mudholkar
Vice-chairman, CEO, Financial Planning Standards Board India

1.Why saving for retirement is important
2.Investing in realty has both pros and cons
3.How to select a retirement plan
4.Mutual Funds best for building retirement kitty
5.How to choose best insurance cover for retirement
6.Reverse mortgage house for regular income
7.Tips to buy property for retirement years
8.'Incentives needed for pension schemes'
9.Make hobby your career in post-retirement

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