Money Matters for Retired
Myths Around Retirement

Myth 1: I am retiring / I have retired – time to move all my money to fixed deposits

Fact: This is a common mistake people make. Doubtless, safety of capital is paramount after retirement. However, if you stick purely to fixed deposits, you will find that within 5-7 years, your purchasing power has become half. This is because the returns on fixed deposits are often lower than inflation.

If you are planning for a ~25-year retired life, as most Indians do, you have no option but to keep about 20 percent of your investments in equity. The simplest low involvement way to do this is through Monthly Income Plans (MIP). These are mutual funds that invest 80 percent in debt and 20 percent in equity. While the debt portion gives you safety and stability, the equity component over the long term allows you to stay a step ahead of inflation. You can choose a monthly dividend option so that it resembles a pension.

Myth 2: A pension plan can take care of my retired life

Fact: Pension plans have got the so-called annuity plans that pay a fixed amount every month, depending on the corpus you have accumulated over your earning years. However, in India, annuity yields are extremely low, often lower than even fixed deposits. If you already have a pension plan, you can go ahead with the annuity, but be aware that this is not going to solve your retirement income challenge in its entirety.

If you are still earning and are planning for retirement, stay away from pension plans. You can use a mix of mutual funds and debt investments to plan your golden years, as suggested here: (link of MC article)

Myth 3: I am unable to get insurance! I need to find a policy that admits someone of my age

Fact: Close to retirement, or after it, you don't need life insurance. After all, there is no significant future earning potential that you are trying to protect. Even if you are worried about your spouse or any dependent kids, they need to be paid for by the corpus you have accumulated, not the life cover.What you do need is medical insurance. Since a fresh medical policy for a senior citizen is tough to come by, it is better to take a policy when you are still young and healthy; and continue the same without allowing it to lapse. This way, you can stay covered even into your 70s. Nowadays, your earning kids can take medical cover for you and enjoy significant tax benefits.

Myth 4: I have accumulated a decent corpus. It should easily take care of my retirement

Fact: It is great that you have managed to put together a good corpus. This is certainly necessary for a comfortable retired life; but not sufficient. You should also plan how you will make this corpus earn you regular income. Remember - it's not only for tomorrow's income you are planning, it is for income possibly 20 years later, when inflation makes today's numbers look very small indeed.

So you need to think about:

1. Converting corpus into a regular (preferably monthly) income generating assets

2. Keeping corpus safe, and a part of it saved for medical emergencies

3. Keeping pace with inflation over your retired years

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