Financial Planning During Old Age

Financial Planning is required at every stage. Financial Planning and in particular Financial Planning during Old age cannot be generalized as such. Financial planning depends on the corpus available, requirement and periodicity of returns, other sources of income/ revenue streams, number of income earning persons in the family etc.  Situations are different for different people. Employees of public sector undertakings, large corporates and banks provide pension for whom survival and having some additional savings/ surplus may not be a problem at all.

In the background of what is mentioned above i would just request you to consider the below mentioned points when you plan your finances:

1) Your age, present available monthly income vs required income, availability of funds etc: As mentioned above, some of the jobs in India do provide a certain level of security at retirement. Monthly pension schemes of which the corpus is built up over a very long period of time ensures security for a lifetime and the monthly amount also is substantial which enables the person to maintain a decent standard of living. Even if you were a businessman or a self-employed person and have decided to shut shop and enjoy the benefits of your handwork over a very substantial period of time of if you were in a job that provide a lump sum at retirement which also includes PF/PPF they can be used as a principal in various investment avenues such as Fixed Deposits with Banks, Insurance (Health/ Life), Mutual Funds, Shares (Primary market and secondary market), Debentures and bonds, Government Savings Bonds, Sovereign Gold Bonds, Real estate etc and etc.

Among these various options available, I would specifically like to mention about the National Pension Scheme which has been started by the Central Government and this is a scheme now which can be joined by anybody and they will get the benefits of what any central government employee gets in the form of pension. Under this scheme any person under the age of 60 can join and contribute any amount in excess of Rs. 12000 annually and once he attains the age of 60, depending upon the corpus that he has contributed to the scheme he starts getting pension every month. There are also similar schemes in insurance companies such as Life Insurance Corporation of India and other private players which are recommended because these are amounts that a person will get monthly till his death and is definitely beneficial. In case of death the left over corpus is given to the nominee.

Another option which i find increasingly getting popular these days is related to Real Estate. I have some customers who are retired from their service however a major portion of their retirement benefits have been invested into some sort of real estate and only the balance has been kept aside for traditional investment options. For example i would like to quote the example of this particular customer who managed to purchase for himself a small plot of land out of the savings that he could do during his service. At that time the plot was in a remote place and chances of returns in the form of capital gains or rental was relatively low. However after retirement he found that the property was thickly populated with residents in and around his plot. His requirement was financial security in the form of assured monthly returns and he decided to construct a huge building consisting of 8 number of dwelling units. Today he gets a monthly rental of Rs. 2.00 lakhs from the property and he is well settled to face the challenges of old age.

2) Your ability to take risks, interest in financial markets, daily routine, health etc: I have a few customers who are more than 70 and they still keep tabs on the stock markets and there are a few regular attendees to my bank who everyday over a cup of coffee chat up the happenings of the world economy and political situations and developments. I was even pleasantly surprised when i had a 75 years plus old gentleman walk up to my bank and request for a ASBA form for subscribing for a rights issue which had been announced by my bank. He seemed to know procedures and legal documentation better than me. He had a Diary with him which showed me a table under the heading “Bank Portfolio” in which he seemed to be having shares of at least a dozen public and private sector banks. During the conversation with that gentleman I remember thinking to myself that “AGE IS DEFINITELY ONLY A NUMBER”. So there is no limiting the things that you can or can’t do. IF you keep up a healthy lifestyle, exercise and consider age as only a number you can develop and maintain a keen interest on more risky but rewarding investment options and this will also keep your mind active, healthy and informed.

3) Number of income earning persons in your family/ Number of dependents: There are retired couples wherein both used to earn and have their income sources and then there are also couples where one was a home maker and the other earned the bread. In such cases it may be advisable to also look at options such as term insurance or Pension schemes with continuity clause of the partner wherein the scheme can be continued even in case of death of the original principal applicant/ depositor. There also could be a case wherein you need to care for more than one dependent. In such cases  also it is wise to ensure proper documentation and choose options wisely so that the interests of others are also protected.

4) Have different investment avenues and sources of income: At one point of time, around 2010, bank deposits used to provide annual returns of 12%, today the maximum that you can get should be around 7.50% for senior citizens. Gold was soaring at one point of time today it seems to have slightly lost a bit of that sheen. NIFTY was hovering around the 8000 mark not too long ago has crossed 11000 a few days back. Real estate seemed to be the order of the day around 10 years back today needs a lot of planing and thinking. Today there is the presence of alternative investment options and avenues that were not present even few years back. Every day financial markets are witnessing progressive changes. So what i mean to say is that every investment avenue has its own advantages and disadvantages. The order of the day again is an old mantra given by Warren Buffet “Do not put all your eggs into one basket”. Keep your horizons open and within your own comfort zone. Even if you want only fixed deposits returns, do not put all the deposits into one bank. Spread it across varied private and public sector banks. Every scheme has its own advantages. Spread your horizons and do not limit yourself.

5) A bird in hand is better than 10 in the bush: What I mean to say here is that whatever said and done nobody wants to lose money. Plan your portfolio in such a way so that risk is mitigated to the greatest extent. You can have your own set of planning such as for example you could just divide your various investment options into risky and safe. 15% could be routed into the risky options and the remaining 85% could be invested into assured returns options thereby ensuring safety of your funds and a large portion of returns.

Summing up, again would like to reiterate that financial planning cannot be generalized and apart from what is mentioned above also depends on the persons expected lifestyle, standard of living and comforts. I know couples who need two idlis for breakfast, dal and chawal for lunch and two chapattis for dinner and also others who need exquisite cuisine for their mental satisfaction and living in peace with themselves. So make sure to choose the right mix of the available choices and the important thing is to enjoy managing your finances and look at it as a enjoyable and learning process. Do not worry too much and take rational decisions within your comfort level and framework. As they say, Learning is a continuous process and you also only end up learning from your mistakes and it will make you wiser.

 

By

– Rayner H Ephraim

Financial Expert

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