SANDEEP ENTERPRISES

Planning your finances for life after retirement

Sumitra Murthy retires next year after working as a teacher all her life, but will not be eligible for pension as she has worked in a private school. She has accumulated money in her provident fund, PPF and other investments. She is not confident of managing money herself but wants to learn a few things when she has time on hand. She is not sure about her risk profile, something her banker asked her about. How should she arrange her finances for her retirement?

Sumitra will have to take into account rising life span as the first reality of modern times. She needs to plan for a good 25-30 years of retirement. Her concern is that her corpus might not generate adequate income when she has aged much more than now. She should therefore continue to keep saving, and not assume that she can now begin to use her accumulated corpus.

If she finds a part-time employment, she can manage the first 10-15 years of retirement better. If she continues to earn an income, she will be able to set aside money that will grow in value over the next 15 years, and become accessible when she really needs it and has become older.

Sumitra should split her corpus into three portions: one which she will not use but allow to grow; one which she will use only the income from; and the last which she will draw only to consume. The proportions between these three baskets will change in her retirement years, depending on her needs, her plan for what she wants to leave behind and her additional income. The amount of risk Sumitra can take will depend on the size of these three baskets. If she has an adequate income, she can keep more in the basket that is left to grow. Sumitra should review her status annually and decide on her course of action accordingly.