Senior Citizens Need To Stay Financially Young

Adequate savings that can also generate additional funds are a must for the sunset years. Due cautiousness tinged with some flexibility would help senior citizens build a portfolio to take care of their needs, says Hemant Rustagi.

Key Points

• While it is believed that senior citizens have to spend less, the actual situation would depend on their personal situation and health condition.
• To generate a regular income, have adequate liquidity, beat inflation and leave a legacy, senior citizens' portfolio must have the required flexibility to benefit from emerging opportunities to enhance returns and realign the portfolio, if need be.
• To beat inflation, senior citizens would require to look beyond traditional options. Mutual funds offer a variety of funds that can help them achieve this.

For senior citizens, their golden years present a mixed bag. While on the one hand, they have plenty of time to do what they have always wanted to do, on the other hand, the income stops but expenses don’t. Therefore, it is crucial that their accumulated wealth serves its core purpose of generating or supplementing income to take care of their expenses.

It is generally believed that senior citizens have to spend less during their golden years. However, the actual situation may differ based on their personal situation and health condition. For example, inadequate health insurance cover for a senior citizen who is not keeping good health may add substantially to his/her expenses. Thankfully, there are health insurance plans that are designed specifically for senior citizens nowadays.

An extremely conservative investment portfolio may not be able to keep pace with inflation. While it is important for senior citizens to protect their lifetime savings, efforts must also be made to stay ahead of inflation. Considering that the major requirements of senior citizens are to generate a regular income, have adequate liquidity, beat inflation and leave a legacy, their portfolio must have the required flexibility to benefit from emerging opportunities to enhance returns as well as realign the portfolio, if need be. Since the safety of the corpus remains the top priority, the realignment has to be made in a restricted manner.

Senior citizens typically face a few challenges with regard to their investments. First, it is important for them to ensure that their savings last for their lifetime. Second, they need to adapt to the fast-changing economic scenario. Third, the government’s decision to link the returns of traditional investment options like small savings schemes to the prevailing interest rates requires them to monitor even their debt portfolio actively. Fourth, the complex nature of stock market-related investments like equity funds makes selection and monitoring a difficult task. Last, but not the least, there is also the challenge of protecting themselves from the mis-selling of financial products.

Beating inflation would require senior citizens to look beyond traditional options like fixed deposits, bonds, PPF and Post Office Monthly Income Schemes. Mutual funds offer a variety of options that can help them achieve this end. For example, debt-oriented hybrid funds like Monthly Income Plans allow them to have restricted exposure to equity, as the equity exposure is capped. Another option is to invest in equity funds that have Large-Cap stocks in the portfolio. Index funds can also be a good option. On the debt side, tax-paying senior citizens can consider investing in FMPs, as they are more tax efficient than fixed deposits. Simply put, by remaining financially young, senior citizens can make their money work harder for them.

While having some exposure to equity is the key to beating inflation, overexposure can be risky for senior citizens. The actual exposure to equity would depend upon their ability to take risks, the requirement of regular income, tax implications and personal circumstances.

Senior citizens who are not able to generate sufficient income to meet their regular expenses but have a residential property to their name can use the reverse mortgage option to generate a regular income. Any house owner over 60 years of age can mortgage his/her house with a bank or a housing finance company (HFC), and get regular payments. The added advantage of a reverse mortgage is that one can continue to stay in the house while receiving the much needed payments. The bank has the right to recover the loan by selling off the property after the incumbent passes away or leaves the place. The extra amount, if any, is passed on to the incumbent’s legal heirs.

Senior citizens must also keep an eye on the benefits that are announced for them from to time - normally, one can expect some such announcement in the Union Budget. They can also gain by embracing technology, for example, the facilities of online banking, online investing and ATMs. While proper precautions need to be taken while availing these services, they can certainly make life a little easier.

Hemant Rustagi
CEO, Wiseinvest Advisors Pvt Ltd.