“How to manage retirement funds” is a most common question among retirees. As retirement is one of the most significant milestones in life. It's when you want to relax and pursue your passions. You want to spend quality time with loved ones without worrying about money post retirement life.
Failing to manage retirement savings effectively can lead to running out of funds, causing financial hardships in later years or even dependence on children for basic needs.
As a Mutual Fund Distributor (MFD), you have the power to change this narrative. By offering your expertise, you can guide retirees to answer the critical question of how to manage retirement funds effectively and ensure a secure and stress-free future.
In this article, we will see how you as an MFD can help retirees manage their retirement funds.
The first step is to calculate your client’s total savings such as their total amount in different bank accounts, traditional savings options and other investments like mutual funds and stocks. For example:
Check all accounts in different bank accounts.
Include fixed deposits, NPS accounts, mutual funds, and stocks.
Consider real estate, gold, and other major assets.
After this calculation, you can build a plan as per your client’s risk tolerance, and life expectancy among others.
An emergency fund is vital to manage emergencies during your retired life, particularly for unexpected health issues or costs.
An emergency fund is especially important if your client isn’t covered by any health insurance plan.
In India, over 98% of seniors lack health insurance. Given the rising healthcare costs, an emergency fund is essential.
You as an MFD can assist retirees in determining the right amount to set aside based on past medical records and current health conditions. For instance: If a retiree lacks health insurance, you may recommend setting aside some portion of the corpus for medical emergencies.
It is better to park an emergency fund in an extremely liquid option so that your client can access it within a few minutes.
This will help your clients protect their savings by planning for emergencies.
You as an MFD play a vital role in estimating a retiree’s monthly expenses. This involves analyzing their current lifestyle, fixed costs, and discretionary spending.
For the first year of retirement, the retiree’s expenses can serve as a baseline. However, inflation is a critical factor that cannot be ignored.
Based on the current average inflation rate, you can help your client project future expenses. For instance, if your current monthly expense is Rs 1 lakh, then assuming 6% inflation rate, your client will need to withdraw Rs. 1.33 lakhs every month after five years.
You can help retirees decide to maintain or improve their lifestyle based on preferences and finances. This ensures their funds cover their desired lifestyle in retirement.
Additionally, mutual fund distribution platforms can help retirees identify suitable investment options that hedge against inflation.
Bucket Strategy is a popular investment strategy that can help your retired clients manage their retirement funds. This strategy divides the retirement corpus into buckets based on the time horizons and risk tolerance of retirees.
It covers expenses for the next 1-3 years. Investors can invest in instruments that are low-risk and highly liquid. These include liquid mutual funds and short term FDs
This covers expenses for the next 4-10 years. They can invest in balanced or conservative hybrid mutual funds.
This aims to grow funds for expenses in over 10 years. It is usually invested in equity mutual funds or other growth options.
A regular refill of the short-term bucket from the medium-term bucket and the medium-term bucket from the long-term bucket can help you manage your expenses properly.
You can ensure a sustainable withdrawal rate, usually 4-5%. This prevents the retirement corpus from running out too soon.
Retirees need regular income for monthly expenses. You can set up Systematic Withdrawal Plans (SWPs) from mutual funds. This ensures steady cash flow. Here's the plan:
For example, if the annual expense is ₹6,00,000, then you can set up SWP for ₹50,000 monthly.
If your client had invested in NPS during their working years, SWP can supplement your client’s annuity income as well.
Managing retirement funds needs expertise, discipline, and foresight. As a mutual fund distributor, you are in a unique position to guide your clients on how to manage retirement funds by consolidating their assets, planning for emergencies, factoring in inflation, and creating steady income streams.
Moreover, it is not a one-time process and regular review and rebalancing of their retirement corpus is essential.
