Retired and still working? A financial plan for you

Our relationship with our money changes every few years; it largely depends on the life stages we are in. And, for every new season of life, the road-map for money management needs some course correction. As a part of Firstpost’s financial planning series, we covered various topics; Twenty Somethings , Dinks , and Same Sex Couples , among others. Today, we bring you financial planning for retirees who now are consultants. Read on, to know more.

Your Money: You were once an employee but now in retirement. All those years of work-experience have made you an expert. You now work as a consultant, dispensing valuable advice and making loads of money. Probably you make more today then what you used to make as an employee. With financially independent grown up children, the house and car already paid for, a small fortune kept aside (retirement kitty) and the consulting assignment money rolling in every now and then, life looks good. And, the spouse also has a something running at the side, which keeps her occupied and brings some decent money in. Your nest may be empty, but the nest-egg is growing nicely. If you are in this position, you must have done a thing or two correct as far as finances goes. Until now. But what worked then may not work now.

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Exigency: At this stage of your life it’s possible that your actual expenses have reduced substantially (no children as dependents, etc). So you think the amount of emergency funds (three-six months’ expense) you keep aside should reduce (since expenses have reduced). But that’s hardly correct. Says Jayant Pai, Mumbai-based Certified Financial Planner (CFP), “Any consultancy-based income is lumpy (larger amounts, but irregular) and with not much annuity, you need to keep aside a larger cash balance.” Have easily accessible, and slightly larger amounts kept aside. Anything more than six months of expenses kept aside is good enough. However, if you get a regular pension (ex- government employee) apart from consultancy income, keep aside less than six months’ expenses for emergency.

Insurance: We assume you already have a term life insurance policy running. If not, you don’t need get one now, since you don’t have any financial dependents or liabilities.

Heath insurance: Ideally, you should already have a medical cover for self and spouse as well as critical care cover, serious disease disability policy, an accidental death-cum-disability insurance. If you don’t, study your family’s health history and get yourself and spouse adequately insured for health needs. Pai says, “One of the biggest issues with consultants is that they overestimate their health and underestimate their expenses.” With health insurance costs going up each day, the regular Rs 3-5 lakh cover may not be enough for you. But then this also depends on your specific case. Sumeet Vaid, Mumbai-based CFP, says, “One of the most important things to look into is long term healthcare needs. Sadly, unlike many western countries, India still does not have specific insurance for long term health care needs.”

If you’ve been a central government employee and get health insurance under CGHS, you may not need to worry much. But, if you’ve been a private sector employee, and now a consultant, you better use some of the consultancy funds towards making a corpus for long-term health care (LTHC) expenses. Vaid says, “While building a LTHC corpus (usually a long tem goal, for after 10 years), ensure that you have a 50:50 equity and debt instrument ratio.”

Investments: At this stage you will need to re-balance your existing portfolio, as per your life stage, risk profile and market conditions. Planners suggest that as you grow older, your equity exposure should decrease and debt exposure increase. We suggest this strategy for your existing portfolio. A part of the consultancy money can be used to enjoy the good life, pamper your spouse with a vacation, and hand over a little something for your grand children. Part of it, can easily be invested as per your risk profile into various equity (MFs are better) and debt instruments.

Second house: We have heard stories where consultants want to invest in a second house, but always prefer roping in one of the offspring into the transaction. Pai says, “There is nothing wrong in roping in the adult child. There are two reasons why this is done: one, getting a loan after a certain age becomes difficult, and roping in an adult child makes it easier. Second, at the back of the mind is an estate planning angle.” While roping in an adult child as co-applicant is not a bad idea, ensure that this is not the only bit of estate planning you have. Do have a proper will in place. Also, if possible, avoid taking liabilities - totally.

Final Tip: Psychologists have observed a typical behaviour pattern among experts (consultants). When someone is expert in one subject, he automatically assumes he’s an expert in other matters as well. You might be a consultant in your field, but that does not make you a better money manager. So as far as tax planning goes, ensure that you avail yourself of the the services of a CA or a CFP. As a consultant, you can obtain various tax breaks, right from those related to car depreciation to phone bills and like, which you may not be aware of. Also, approaching a CFP for money management for latter years isn’t a bad idea. Your brain isn’t getting sharper by the day.

Now that you still have health intact and a few more years to make money via consultancy, make the most of it. But don’t stress too much at the cost of health.

And also take your spouse for that long awaited foreign trip. After all, you’ll deserve it.