How to Manage Money After Retirement

Posted by Aman Khanna
September 14, 2017

Self-Published

A retirement is an event in life which goes on for more than 25 years. Most people retire at the age of 60. Irrespective of what age you are retiring at, you should know if you have a financial backup for yourself as well as your family. You have to be sure that you have enough funds with you to meet the future inflations and hike in prices. You will have to pay off your outstanding loans and EMI’s if any. This will drain your savings, and you will not be able to enjoy your retirement. To enjoy your retirement, you must have saved enough money during your working life. You may have invested your money in company shares or the stock market in general. However, you do not know the amount of inflation that will take place in the market.

The amount that you are allowed to spend is only that which exceeds the investment amount. For example, your post retirement savings are INR 1 crore of which you make a FD and earn returns of INR 7 lakhs with a 7% interest rate. This means that you have INR 7 lakhs to spend. Well, this is not the case. Considering inflation rate is 5%, you will have to deduct it from your interest amount. Hence, your yearly income which you can spend will be INR 2 lakhs which is 16,666 per month. This amount is not enough for a middle-class person and will require much more than that to lead a comfortable life.

The rise of interest rate does not affect these calculations as the rate of interest and inflation rate track each other.

There have been times when inflation rate has exceeded fixed income rate. However, you will have to pay your income tax whether the returns are realised or not. It is possible that the value of money effectively reduces due to an inflation rate which marginally exceeds the interest rate paid on income tax.

Equity-Backed mutual funds have a different scenario. On the one hand, they have high-earnings, but on the other, they are also volatile. Returns can be low or high for a given year. However, over the period of five to seven years or further, inflation is exceeded by 6-7%. Fluctuation of returns can be observed in individual years, and this is something which an investor will have to tackle. However, for a retired person, 4% of the amount can be withdrawn comfortably, and this will still give you a fair amount of margin. Moreover, if the period of investment is more than a year, then returns from equity can be exempted. Hence, for your monthly expenditures, you will need to invest half of what you would rather invest in a fixed deposit. Additionally, you are benefitting overall as you do not have to pay tax.

Usually, people who are familiar and look for long term returns and also are not worried about their short term losses invest in equity. However, the process of FD and saving bank accounts are still followed by the majority of retired Indian citizens.

It is not important that you retire at the age of 60. You may choose to work further and earn some extra money. Few people like to work even after their retirement which is a good thing. However, you should also consider if your health permits you to work.

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