The onset of retired life does not reduce the importance of financial planning. Vigorous planning during both periods — in the years leading to your retirement and during your retired life — is the key. With limited sources of income and retirement corpus to rely on, one needs to be more prudent with their financial choices after retirement and be prepared for future years. A retirement corpus created through years of disciplined investment can be under threat by risk factors like inflation, taxation, increased health care expenses, and unforeseen financial exigencies.

The unexpected bumps can sideline the plan of getting your financial ducks in a row, but you can always ride out of the storm by learning a few money moves. Here’s how.

Continue to Remain Invested

Many investors are often advised to entirely redeem their equity exposure for debt funds and fixed income instruments once they approach or reach their retirement age. However, returns generated by fixed income instruments usually fail to beat inflation rates. For those in the higher tax slabs, fixed income instruments may very well generate negative returns after deducting income tax from the inflation adjusted interest income. When one factors in the increased healthcare costs with rising age, a complete shift to fixed income investments might increase the risk of outliving their post-retirement corpus.

Since equity as an asset class beats fixed income instruments and inflation by a wide margin in the long term, continued exposure to equity is crucial for your retirement corpus to outlast your lifespan. Hence, instead of shifting the entire equity portion of your post retirement corpus to fixed income products, identify your financial goals maturing within 5 years and let the rest be invested in equity mutual fund schemes based on your risk appetite. Equity mutual funds are also more tax friendly than most fixed income investments, as long-term capital gains (profits after a year of equity investment) booked over Rs 1 lakh per financial year are taxed at 10 per cent.

Invest in High-Yield FDs and Debt Funds

Retirees are often advised to buy annuities from their lump sum retirement proceeds in the form of gratuity, provident funds, or other retirement schemes. However, the post-tax returns generated by annuities usually fail to beat the inflation rates. Instead, retirees should first estimate their short-term financial goals and invest their retirement proceeds in high yield bank fixed deposits offered by small finance banks and a few private sector banks. The surplus money left after factoring in your short-term goals can be invested in equity funds based on your risk appetite. The highest fixed deposit slab rates offered for senior citizens by these banks exceed 7 per cent per annum, which is around 100-150 basis points higher than those offered by PSU banks and large private sector banks.

Remember that opening fixed deposits with small finance banks is equally safe as with other scheduled banks as these banks are also covered under the deposit insurance programme of DICGC, an RBI subsidiary. The deposit insurance programme covers cumulative deposits of up to Rs 5 lakh of each customer of each scheduled bank in case of bank failure.

Retirees with a higher risk appetite can invest their retirement proceeds for short term financial goals in ultra-short, short, or low duration debt funds. These debt funds usually generate higher returns than fixed deposits. For those in the higher tax slabs, investing in debts are also more tax efficient for investment horizons exceeding 3 years. The gains booked from debt funds after 3 years of investments are considered as long-term capital gains and are taxed at 20 per cent with indexation.

Ensure Adequate Health Coverage

As old age makes one prone to various diseases and injuries, having an adequate health insurance cover becomes indispensable for retirees. A high inflation rate in healthcare services coupled with increasing life expectancy can further escalate the medical costs in their lifetime. Moreover, the absence of any employer-provided group health insurance coverage can make your retirement corpus the sole source of covering healthcare costs post retirement. Thus, increasing healthcare expenses can significantly spiral the risk of quicker depletion of their retirement corpuses.

Retirees should purchase an adequate health cover even if it comes at a higher premium. If one already has health insurance, he should buy top-up policies to cover the deficit arising from the withdrawal of his employer-provided health cover post retirement. The premium charged on top-up health covers would be lower than purchasing an additional health insurance policy.

Opt for Reverse Mortgage

Retirees owning a house property but lacking adequate pension or post-retirement corpus to support themselves can opt for the reverse mortgage loan facility offered by some lenders. This loan facility allows retirees to monetise their house properties for lumpsum amounts or periodic disbursals spread over their remaining lifetime. Although the tenure of such loans usually goes up to 15 years, the repayment of the loan is not triggered either until the borrower’s death or him or her moving out of the pledged house. If the borrower or his or her heir fails to repay loan repayment, the outstanding loan amount and interest accrued is recovered by the lender through the sale of the pledged property. Any surplus generated from the property sale is distributed to the borrower or his heirs.

Create a Contingency Fund

Just like any working individual, having an adequate emergency fund is equally important for a retiree. The financial risks arising from the absence or inadequate emergency funds would be higher for the retiree, as availing loans to deal with financial emergencies would be difficult in the post-retirement phase. Redeeming equity investments to tackle financial exigencies can result in loss or sub-optimal gains, especially during bearish market phases.

Retirees should set aside an amount equivalent to at least 9-12 times of unavoidable mandatory monthly expenses like loan EMIs, rent, utility bills, grocery, and medical bills, insurance premiums, in a separate emergency fund. Those comfortable with mobile and internet banking can also park their emergency fund in fixed deposits of scheduled banks offering higher interest rates.

The author is CEO and Co-Founder, Paisabazaar.com