Personal Finance: Retiring In A Recession

PERSONAL FINANCE
Retiring In A Recession

Hanging up your boots is never easy, and if you are doing so during a downturn, you need to plan extra carefully.

By Shilpa Nayak

A retired couple enjoys an idyllic life on the banks of Ganges in Rishikesh. Plan smartly for your days ahead.

After 40 years of hectic corporate life, Ramesh Nair will retire on August 31. Although he's been preparing for it for almost a year now, the speed at which the d-day has come hurtling towards him was totally unexpected. He has got most of the paperwork done; he has cleared whatever little loan he had taken from the company; the provident fund account had been taken care of, bank accounts consolidated; last of the few home loan installments paid, and the medi-care policy for him and wife renewed, and for a bigger amount.

But he hasn't had the time to figure out what to do with the Rs 10 lakh he would be getting on retirement. And, unfortunately for him, it isn't the best of investment climate he is getting into. The Sensex is off its year-old peak, interest rates on deposits are down, mutual funds are under a cloud, property rates are stagnant, and there seem to be few good investment opportunities around.

Nair, however, needs to plan his retirement keeping in mind the growing life expectancy in India. For example, an average male can expect to live up to the age of 57.7 years versus 50.9 barely a decade ago. Similarly, the life expectancy of women in India is up from 50 to 58.7. Nair thinks he will live well beyond the average figure, because he hasn't had a stroke yet, he's a teetotaller and doesn't smoke. So, that's at least another 15 years of life to look forward to. There are thousands of new retirees like Nair around. Just how should they plan their retirement in a recession?

Far From The Madding Crowd

The retirement issue, just like your choice of career, company and city, is about lifestyle. You have to decide what kind of a life you want to lead here on. If you have pushed yourself all these years, then you probably are waiting to take it easy. Lead that Utopian life where everyday on the calendar is a Sunday, and you get the greens all to yourself. A good thing to do is to relocate to a smaller city. Not only will the cost of living be lesser, there will be fewer people and the pace of life will be just what the doctor recommended for your heart.

Uttara Parikh, a just-retired executive of Air India, has taken up consulting work to stay busy and share her learnings.

There are other benefits, too. For example, you can sell your house in the big city, and buy one in your new city for less money. Put what you save in a fixed deposit, and watch it fetch you a monthly cheque. And no matter which metro you are in there's a nice small city nearby. Mumbai has Pune, Chennai has Coimbatore, Delhi has both Chandigarh and Mohali, and if you are in Kolkata...well, you really don't have to move out (okay, okay, that was just a joke). Take the case of Sharad Gokhale, a senior executive with a nationalised bank, who retires in September. He and his wife, who took voluntary retirement last year, are moving to Pune, and putting their Mumbai house on rent. ''The rental income will be more than enough to cover our expenses in Pune,'' beams Gokhale.

You could do the same with your car. You may no longer need the Honda City or Opel Corsa you are driving. A better idea would be to invest in a Wagon r or a Santro. You'll save on fuel-your fuel bill could come down by as much as Rs 2,000 a month if you are an intensive user-car spares, and maintenance, and still get to travel from one place to another in comfort.

Somebody like Nair, who's a chemical engineer by education and still physically fit, could do something better: take up ad-hoc assignments. It will give him the flexibility of working whenever he feels like it, and making a tidy amount every now and then. Uttara Parikh, a just-retired executive director of Air India, couldn't agree more. She has already taken up two assignments, and plans to stay as busy as ever. ''I like to stay busy, besides which consultancy gives me a chance to share my expertise and experience acquired over the last 30 years,'' says Parikh.

The Monthly Cheque

No matter what post you retire from, your immediate objective would be try and maintain the standard of living you have been used to. Not a difficult thing to do if you plan your finances properly. There are a few monetary requirements unique to a retiree. One, you need monthly income to be able to pay your rentals, grocery bills, travel and entertainment expenses. Then you also need a biggish nest egg to take care of medical emergencies-say, a bypass surgery or a cataract operation.

Irritatingly enough, there's an inflexible rule to investing: the returns are proportionate to the risks involved. Therefore, if you want your money to fetch high returns, then you must be prepared to take greater risks. Now, at the age of 65 or more, your aim should be to keep your lifetime's worth of savings safe, while earning a reasonable (and that's the operative word) rate of return. Anyway, in a financial market where interest rates are headed south, it is futile to expect any mode of safe investment to fetch 17 to 18 per cent of return. Says Parikh, who invested her retirement kitty in RBI bonds, institutional bonds, and deposits of banks and multinational companies. ''I consciously stayed away from risky investments like equities, and I don't regret that at all,'' says she.

Pension provident fund (PPF), RBI Relief Bonds (9 per cent return tax free), and monthly income plans from post office and mutual funds are some good investment vehicles for retirees. But in case you have taken voluntary retirement and plan to pursue part-time or even full-time work elsewhere, or have children who need to be put through a master's degree, it might be a good idea to retain some exposure to equity. After all, there's no denying that stocks do outperform most other kinds of investments. You could invest in stocks either directly or through a mutual fund. A growth fund (it aims for appreciation in stock price) or balanced fund (it has a mix of debt and equity investments) are best suited for retirees. Says Dheeresh V. Amin, 57, Senior Superintendent, Indian Airlines, who is six months away from retirement: ''Since basic needs like housing and monthly income are taken care of, I want to invest my surplus income into equity.''

While working out your investment portfolio keep the tax angle in mind. If finding your way through a maze of fine print proves to be nightmarish, hire a consultant. We already mentioned one tax-free option (RBI relief bonds). Fixed deposits of financial institutions or financially sound corporates, while not exempt from tax, are safe bets too. The post office offers monthly income schemes and also tax-free schemes such as Kisan Vikas Patra (KVP), where investments double in seven years and three months. Besides, premature withdrawal is permitted. Interest on time deposits of over Rs 2,500 with banks and non-banking finance companies are subjected to tax deduction at source. Hence, you may want to park your funds in smaller lots. For, more than ever for you, a rupee saved is a rupee earned.

Issue Contents Write to us Subscription Syndication