I am 68 years old. I have 30 lakhs in FD. I have to rent a place to live for Rs 7,000 to Rs 10,000 monthly. How to manage my saving for the rest of my life?
James Lawrence
Responses by Raj Khosla Founder and MD – My MoneyMantra.com
First, let us assume that an individual aged 68 has a fixed deposit of Rs 30 lakh that should generate regular monthly returns to pay for expenses like rent and living expenses. The key things to look out for are:
Regular monthly returns – As the individual would be dependent on the income that will be generated, it is important the returns are deposited in a timely manner so that the expenses for the month can be planned in advance. Safety of capital – As the senior citizen who is totally dependent on the income that is being generated, the safety of the principal invested is of paramount importance. There can be no capital risk taken for increasing the rate of returns. Freedom to withdraw the principal in case of an emergency – At this age, there is a risk of a medical or personal emergency and there may be an immediate requirement to withdraw an amount greater than the regular monthly income. In such a case, it becomes important that the senior citizen is able to withdraw the amount of money desired. The individual also has to consider the risk of inflation, the costs for rent and other essentials will increase in the future, whereas his returns may not increase commensurately. Thus, he should try to save as much as possible from his monthly income. There are products like annuities, monthly income plans and fixed deposits to cater to the above-mentioned needs but the product that caters to all the requirements are fixed deposit and Monthly income plan mutual funds.
The consumer should diversify their portfolio and invest in bank fixed deposit, corporate fixed deposit & a Monthly Income Plan mutual fund. The bank FD will give a stable interest every month on a fixed day, he can choose a bank which offers the highest rate of interest. Currently, banks offer upto 8.3% per annum for senior citizen fixed deposits. Corporate FDs can offer a higher rate of interest compared to banks but the safety of capital can be a risk for smaller corporates. Thus, it is essential to choose a reputed corporate for a slightly higher rate of interest. The third option is to invest in MIP where a regular monthly income is received on a fixed date along with a higher rate of return on account of some part being invested in equities.
A portfolio can be created where Rs 15 lakh is invested in bank FD for a stable income to take care of the monthly house rental. At 8.3%, this will generate an income of Rs 10,375 per month to take care of the rental. Another Rs 10 lakh should be invested in a MIP to receive regular income to take care of sustenance and pending Rs 5 lakh can be invested in a corporate FD with a monthly payment option to earn a higher rate of interest.
Here are some additional tips for managing your savings for the rest of your life:
Live within your budget: This is the most important tip for anyone who wants to retire comfortably. Make sure that you are not spending more money than you earn.
Invest your savings wisely: Invest it in assets that have the potential to grow over time and should be in tune with your risk profile
Rebalance your portfolio regularly: As you get older, you may need to adjust your investment portfolio to become more conservative. This will help to protect your savings from market volatility.
Review your financial plan regularly: Your financial situation will change over time, so it is important to review your financial plan regularly.
(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)