Post-retirement investment management is as critical as during the employment years, especially considering the escalating health costs and the desire to sustain a certain standard of living in the years following retirement. Relying solely on a monthly pension may not always suffice, given the potential mismatch between funds and rising expenses.

Quite often, retiring parents may not be well-versed in managing their investments post their working life. They might rely on a few selected financial products or simply maintain their existing investments, presuming a smooth journey. Here, it becomes important for us to proactively assist them in taking suitable actions to ensure they don’t face financial strain due to high expenses in their retirement years.

Initiating this process involves gaining a comprehensive understanding of their current investments and the one-time corpus they receive post-retirement, such as Provident Fund (PF), Gratuity, or Leave Encashment. This assessment is pivotal before recommending adjustments to their investment approach. The aim should be to create a balanced investment strategy, primarily focusing on debt products.

Also Read: 5 mistakes to avoid if you want higher mutual fund returns

Here are five effective ways to assist your retiring parents with their investments:

Equity Exposure Adjustment

Post-retirement, the overall equity allocation should not exceed 20-30%. If the current allocation is higher, immediate corrective actions should be considered. Opt for a limited exposure to large-cap stocks, if necessary, and explore balanced advantage funds. These funds aim to safeguard investments while offering substantial returns that beat inflation. Such an adjustment in equity investments will lend stability to the overall portfolio of the retired parents.

Systematic Withdrawal Plan (SWP)

Review the long-term Mutual Fund investments of the parents. If they no longer wish to continue with the Systematic Investment Plan (SIP), consider keeping the investment untouched to grow with the market. However, if parents require an additional income from these investments, encourage them to opt for SWP in their Mutual Fund investments, receiving a fixed payout monthly or quarterly until the units last. Consider switching the investment to another suitable mutual fund scheme with a debt-oriented or balanced approach to facilitate the SWP.

Senior Citizens Savings Scheme (SCSS) and Monthly Income Plans

Utilise a substantial PF and Gratuity corpus by investing in the quarterly payment option of SCSS, which currently offers an interest rate of 7.4%. Considering the maximum permissible investment, it yields a quarterly payout of Rs 27,750. Additionally, consider a 5-year investment in the Monthly Income Scheme (MIS) provided by post offices, offering a current interest rate of 6.6%. The monthly interest payout under joint ownership reaches Rs 4,950 for a maximum investment limit of Rs 9 lakh. These instruments incur full taxable interest. SCSS investments are eligible for tax benefits under Section 80C, whereas MIS doesn’t offer such benefits.

Continuation of Public Provident Fund (PPF)

If parents have a maturing PPF account after 15 years, suggest extending the investment in blocks of 5 years if they don’t require the funds. With an interest rate of 7.1%, one of the highest among debt instruments, parents can continue the account and earn interest. Interest earned on PPF is tax-exempt, and yearly investments in PPF qualify for tax rebates under Section 80C.

Investment in Tax-Saving Instruments

If parents face substantial tax liabilities, recommend tax-saving debt instruments like Tax Saving Fixed Deposit accounts, which have a lock-in period of 5 years. Tax-Free Bonds are another option for retirees to trim down their income tax burden, as the interest earned is tax-free. However, this option entails a much longer tenure, spanning from 10 to 20 years. Ensure that such a lengthy duration aligns with their financial needs.

Adhil Shetty, CEO, Bankbazaar.com, says, “You may consider reducing equity exposure to 20-30% post-retirement and reallocate their funds into more stable options like balanced advantage funds to maintain portfolio stability. Encourage systematic withdrawal plans (SWPs) in mutual Fund investments for a steady income if needed and recommend Senior Citizens Savings Scheme (SCSS) or Monthly Income Scheme for substantial sums to secure higher interest payouts.”

“While addressing retired parents’ investments, it’s equally important to ensure they have adequate medical insurance coverage. Proper medical insurance can significantly protect investments from being significantly impacted by unexpected medical emergencies,” adds Shetty.

Additionally, it’s crucial to understand your parents’ risk appetite. For those with moderate to high risk tolerance, consider substituting some of the debt instruments with equity products, like Equity Linked Savings Schemes (ELSS) for tax savings. Post-retirement financial planning should be reviewed every three years, considering a mix of available investment options based on evolving needs.