l your money: Regular cash flow is key to a stress-free retired life

One OF THE MOST important considerations after retirement is how to properly manage your money so it serves you for the rest of your life. Upon retirement you may receive a significant corpus from provident fund, gratuity and other benefits. Or if selling off a business, you may receive a significant amount from the sale proceeds. What you do with this money will determine how much you can sit back and enjoy your second innings.

What retirement planning is not?

Retirement planning is not purchasing money-back policies and annuity plans. Retirement planning is not even investing in PM Vaya Vandana Yojana and Senior Citizen Savings Scheme and hoping the interest will help you manage expenses. Good retirement planning and execution enables you to have enough money to live and sustain your desired lifestyle during your golden years.

Retirement corpus

Many thumb rules are followed while determining the retirement corpus needed. The most common one is the 4% withdrawal rate. And then there is the bucket strategy for retirement cash flow generation.  While thumb rules are a great way to start, a more scientific approach will be to estimate the cost of your desired lifestyle and adjusting the same to inflation over lifetime. Early retirement years are likely to see high spending due to more active travel or hobbies. This is likely to slow down with time and later on medical expenses and long-term care may push expenses up. With this information, you can discount the cash flow needs with the expected interest rate to determine the retirement corpus needed.

Tax efficient cash flow

Upon accumulation of the required corpus, the next step is to find out what is the best way to create a regular cash flow. Interest, annuities, rent, dividends can all provide for regular cash flows. Mutual funds have facilities like systematic withdrawal plans to ensure regular cash withdrawals without impacting the returns on the rest of the corpus. It is important to find a tax efficient and hassle free way to generate monthly cash inflows to pay the bills. Also, the corpus has to be easily accessible and liquidatable in case of emergencies.

Returns to beat inflation

While planning for retirement, assuming a longer lifespan is more prudent. And over a long period of time, inflation is a termite that can eat away your retirement corpus however large it is. But in the attempt to earn good returns that beat inflation, risky bets can lead to losing your capital. The whole game is in finding options that can give reasonable returns with the lowest possible risk.

The writer is co-founder & head, Financial Planning, House of Alpha

SECOND INNINGS
While planning for retirement, assuming a longer lifespan is more prudent
The whole game is about finding options that can give reasonable returns with the lowest possible risk