How to Allocate Funds on Retirement

Retirement is a very emotional issue because the individual after giving a major portion of his or her life to organization has to leave the organization; the only solace as far as individual is concerned is that he or she get substantial amount of funds on retirement and for an individual who is living on salary for whole his or her life it is very difficult to manage the funds. In order to live a good life even after the retirement an individual should allocate funds in the following way –

  1. The first and foremost thing one should do is to invest 70 to 80 percent of the corpus in fixed earning asset like fixed deposit, government bonds, money market mutual funds and so on. The effect of this investment is that an individual will keep getting regular income in the form of interest from this investment. So for example, if the individual has received $800000 on retirement and out of this $ he or she put $600000 at an interest rate of 8 percent then yearly interest income from the fixed deposit will be $48000 which in turn will result in monthly interest income of $4000.
  2. Another thing one should keep in mind is to keep 5 to 10 percent as cash with him or her because exigency has the habit of striking when you least expect it and in times of emergency cash is the biggest friend for an individual and that is the reason why one should always keep cash in hand. Another reason for holding cash is the age factor because when you are young you can take the stress and arrange for cash through various means but at the old age, it is not prudent to take that stress.
  3. One should also take health insurance for himself or herself and also for the spouse because in old age the biggest uncertainty is the health of the person and if you have cover for that then you do not have to worry about other things because health insurance will take care of all the expenses related to health. We all know that health-related expenses form the major chunk of expenses for the old age people so it is better to be safe than sorry.
  4. All investments should be of short term or medium term because long term investment in old age is not advised as liquidity is more important than return on investment. Hence, investments in an asset like land or building, fixed deposits which are above 5 to 7 years are ruled out.
  5. An individual should spend 10 to 15 percent of income from retirement funds on various leisure activities like going to foreign or domestic trip with spouse every year or going for movie and dinner every fortnight and so on because retirement is not the end of life rather it is an opportunity to do those activities which an individual was not able to do due to work.
    As one can see from the above that after retirement an individual cannot be complacent with respect to money because the improper allocation of funds after retirement can be similar to going to desert without taking the adequate supply of water with you.