Three thoughts on investing after you retire

For some reason, lately,  there have been a lot of questions about retirement planning and what to do with the money you get after retirement, and I think this topic deserves a mini series. Today, I’m going to write about three things that have been on my mind about this. Before I begin, for context, here is the full comment that prompted this post.

biswas July 10, 2012 at 7:37 am [edit]

There are many articles on how to plan for retirement.It will be nice if you can discuss on how to plan once one is retired.I am likely to retire in couple of months.I will receive a large lump-sump amount.I don’t know what to do except for FD.An article on this topic will really be appreciated.

As someone whose retirement is still a few decades away it is hard for me to really get into the shoes of someone who is retiring in a couple of months, so I’m going to write about three lessons I’ve learned from my elders who have already retired and made some good and bad financial decisions.

1. Don’t seek excitement in the stock market: A few years ago when online trading had still not caught on, it was quite common to go and sit in your broker’s office and execute trades. I used to go to my grandpa’s broker at the time and was surprised at how many retired folks “play” the market. In the end, none of them made any money, and most lost quite heavily, so if you’re seeking excitement in the stock market, that’s the last thing you want to do with your retirement savings.

2. Lock in your money in big investments: Someone in our family who was retiring soon told us over dinner that his elder brother who retired many years before him gave him this advice, and I think this is perhaps relevant to a lot of families.

His elder brother told him that over the years his retirement savings had been eaten away by giving small gifts and loans to people in need and the fact that people knew he had the money, made them approach him and talk him into sharing it with them.

He suggested that one way of avoiding this situation is to put your money in places and in chunks where it really hurts to give them away, breaking a fixed deposit of Rs. 5 lakhs is a lot more painful than writing a check for Rs. 50,000 from your savings account. Sounds like great words of wisdom to me.

3. No one knows any secrets: A friend’s dad only invests in post office schemes and bank fixed deposits and he is never tempted to make great returns on a swanky new insurance product or the stock market or anything else that’s hot at the moment. His philosophy is simple, there is only so much money you can make with money, so don’t get sucked into dreams of doubling or tripling your money in a year or two. No one knows any secrets.

When you think of all the smart people that invested with Madoff and never chose to question his returns, it’s obvious that there was an implicit assumption that somehow Madoff knew a secret that the rest of the market didn’t. That kind of thinking is at least part of what led them to believe in the Ponzi scheme. I think it’s wise to assume that no one knows any secrets, specially when dealing with all your retirement savings. Playing it safe is better than assuming that someone has access to a golden goose that he’s willing to share with you.

Finally, since I didn’t talk about any products, here is a link to an older post with a list of some safe investments that seem appropriate for this situation.

15 thoughts on “Three thoughts on investing after you retire”

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  2. I think at retirement one should have some equity: how much depends on corpus size, whether one has health insurance, etc. Its not just a nice to have, but its for the risk of inflation. I noticed another comment about MIP. MIPs are really ideal as they are tax efficient and they have 20% equity. When short term safe bonds (govt bonds) are yielding 8% or higher, taking 20% equity risk is no risk at all.

  3. “2. Lock in your money in big investments: […..] His elder brother told him that over the years his retirement savings had been eaten away by giving small gifts and loans to people in need and the fact that people knew he had the money, made them approach him and talk him into sharing it with them.”

    Very well said, Manshu.
    Very true.
    This is the reality of this physical and money minded world.

  4. nice post. actually people who are just about to retire/ have just retired are on the radar of the bank relationship managers and product agents, who promise false returns to lure the senior citizens into buying products they dont understand and repenting later. one more investor behaviour I see in senior citizens receiving lumpsum retirement benefits is to spend on luxuries like car, ACs etc. so the option you have suggested to lock in the money is very relevant. and as regards the best product, I think its Senior Citizen Saving Scheme (SCSS) and good old post office MIS.

    thanks for the thoughts!

  5. Very well written !!!
    I am a 65 yr old doctor, still actively earning…may be i will continue practice fr 2 more yrs…I have invested over last 30 yrs across all asset classes…now i have a lumpsome to invest.i am looking forward to tax efficient instruments ( i fall in 30% slab) with a 2-3 yr horizon. Do u recommend FMP or MIP (mutual fund) or both?? If i invest in MIP, shd i do a lumpsome investment + SIP’s or only SIP’s??

    I intend to lock in my money at the current interest rates in a 2 yr & a 3 yr FMP. I have shortlisted Birla Sun Life FTP Series FG ( 728 days) & ICICI Pru FMP Series 63-3Y Plan M ( 1098 days). Is my choice correct?? kindly advise…

    1. To be honest I haven’t really looked into the intricacies of a MIP versus FMP thing. I know FMPs to be tax efficient and safe so that’s good, and even tax free bonds are something you can keep an eye out. One possible benefit of investing periodically is that you can have money to invest in other products like new offers of tax free bonds or NCDs with good yields when they come to offer.

  6. For a retired person FD, NSC, Tax free bonds will all return almost same returns since tax rate will be low. Now, if you invest Rs 1 Cr in them, it may last only 20 years. But if you are willing to take risk and invest 70 lakh out of it in long term Equity (of only large cap companies or in equivalent Mutual Fund) then it may last 25-35 years (yes, huge uncertainty). The key question is how long do you need your retirement corpus. Are you going to live 15 more years or 30 more years after retirement? Depending on that you may have to take different approach. I follow a simple rule. If a person’s parents have died of natural death, then I assume that the person will live about 10% longer than parents’ average age at death. Otherwise I take 20% longer than the grand parents’ average age at death. When I did this calculation, I found that I may live 78 years and my wife 80 years. So, we are planning to have our retirement corpus till we are 85 (added some buffer as well).
    To answer the earlier question of where to invest, I must say that almost everyone says that one has to keep risks low. But considering that we live very long retired life, I personally feel that we have to have exposure to equity. When I retire at 55 years of age, I cannot assume that FD will take me till I am 85 years of age. So, I have to build a foundation of good equity base now so that I can be comfortable with the stocks/MFs and maintain them when I retire.

    1. I think 70% or so is a very big risk especially when we’ve seen the index itself go down violently by 50% in a year. If that happens then it has to rise by 100% to just reach where it was and if you’re not earning at the time, this can be a loss that you never recover from.

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