#1

Be Well-Prepared for Emergencies

Threat from emergencies

Studies have found senior citizens in India are grossly under-covered with health insurance^# which means medical emergencies, especially hospitalisations, become large out-of-pocket expenses. A 2024 Niti Ayog study revealed that health expenses typically constitute 17.4%^## of consumption expenditure of seniors, going up to 24.8%^## for those in lower income groups.

Investments of senior citizens are typically focussed on creating regular income. Emergencies, especially those related to health, typically occurring in retirement, can make senior citizens dip into their savings. This, in turn, tends to dent regular income and irreversibly downgrade their quality of life. To counter this threat, one needs an emergency fund.

How an emergency fund helps

An emergency fund is an integral part of a person’s finances during work life, typically covering 3 months of expenses. In retirement, this requirement tends to be more i.e., typically 6 months of expenses. This can go up to even 6-9- months and more, depending on individual requirements like medical conditions of self and spouse.

Given the significant size of emergency fund, the money needs better alternatives than low paying bank savings account that typically provide 2.7-3.5%* annual interest. Thus, most of the money, say 4-5 months of expenses, can be kept in liquid funds, which typically provide returns of 7.25-7.35%**. Of course, the amount likely to be immediately needed can be kept in a bank savings-cum-fixed deposit account.

To prevent an outsized emergency fund—this money does not earn high returns, with low risk and high liquidity being the key—one needs to supplement emergency fund with adequate health insurance cover.

#2

Invest for Regular Income in the Future

One of the keys to safeguarding financial independence is balancing today’s regular income needs with growing retirement savings for ample future income. The major reason for this is that over the years, thanks to inflation, senior citizens need to periodically enhance their regular income to retain their purchasing power of regular income.

This balance can be achieved when after ensuring liquid and income generating investments cover needs for 18-24 months, the rest is invested in higher risk investments with inflation combatting and long term growth potential such as hybrid mutual funds. Depending on the size of retirement savings and risk appetite, experts typically suggest for those above 55 years, a thumb rule of 25-35% of liquid and income generating investments as percentage of net worth^{^^} i.e., broadly the difference between your assets and your liabilities or your total wealth.

Senior citizens can periodically top up their regular income every 4-5 years, ideally using capital gains of hybrid mutual funds whenever inflation starts biting hard. An attractive option for regular income top ups are investments in hybrid funds like multi asset funds and balanced advantage funds. Over a 5-year period ending on April 28, 2025, they delivered 9-17%*** annual returns. Regular income top ups can be done using the Systematic Withdrawal Plan (SWP) facility.

Initially, capital gains can be used for the SWP inflows since the top up amount required may be relatively small. This will allow the remaining money to keep growing. You could choose the SWP withdrawal frequency depending on your requirement i.e., monthly, or quarterly. Capital gains withdrawal will be tax efficient as capital gains up to Rs 1.25 lakh annually will be tax free, being considered as long term capital gains. For capital gains thereafter, the remaining capital gains will be taxed at 12.5% long term capital gains tax. This is significantly lower than applicable income tax rate for other income sources like interest and dividend.

Further into retirement, depending on needs, one could opt for a fixed amount SWP and choose the withdrawal frequency accordingly. For best results, it is ideal to be guided by an experienced mutual fund advisor or a Registered Investment Advisor (RIA).

#3

Simplify Your Finances

Consolidate investments

As senior citizens progress into retirement, it helps if they consolidate investments, so that tracking and managing them becomes easier. This is typically required with progressively declining physical abilities, and in many cases, cognitive abilities too. This means restricting to 1-2 bank savings account, fewer fixed deposits (FDs), mutual fund schemes and stocks.

Exit illiquid investments

This includes property such as land and built up property. Since getting the right price for such investments depends on a host of factors such as market conditions and location, exiting them reasonably early in retirement and reinvesting the proceeds in financial assets like hybrid mutual funds such as multi asset funds & balanced advantage funds helps maximise the returns, boost liquidity and prospects of ample future income.

This is also a way to avoid a common problem of cash crunch which many retired people face in middle and late retirement years despite having high net worth. Excessive fixed income investments means inflation eats into its purchasing power during retirement. The liquidation process also makes wealth distribution to heirs much easier.

#4

Remain Vigilant Against Frauds

A balanced approach towards ample regular income and growth of retirement savings ensures that senior citizens do not need to take unjustified risks. However, in its absence, many retirees end up doing just that and become victims to frauds and scams, losing large amount of retirement savings. Sometimes disaster strikes due to a lack of awareness or gullibility. According to RBI Annual Report of 2023, the number of reported bank frauds increased from 9,097 in 2021-22 to 13,530 in 2022-23^ with many victims being senior citizens.

Fraudsters typically lure senior citizens with fake schemes, bonds and property that involve them reinvesting their retirement savings and pension money for unrealistically high returns. The modus operandi typically involves unsolicited contact through telephone, text message or email. The other common methods are seeking sensitive personal details and insistence to make retirees act quickly. In all such interactions, retirees need to seek detailed information to verify the bona fides. To be safe from this threat, they can simply stick to SEBI regulated investment products like mutual funds and only choose to be guided by -experts who are qualified and registered with SEBI. They will do well remembering the adage, “If it sounds too good to be true, then it probably is.”

#5

Use New Money Management Facilities

An important requirement for maintaining financial independence in retirement is to be able to manage finances. The good news is that help is available online with mobile apps of online investment companies and broking firms that help track investments. Apart from this, educational material on such sites and apps exist, in addition to investor education programmes conducted by mutual funds. They help retired people with continuous learning required to take informed investment decisions. This also allows them to help other family members and friends.

Clearly, retired life may not involve going to work but working on one’s money is a lifelong endeavour.

Source Reference

* Various bank websites on January 13, 2025

** https://www.amfiindia.com/research-information/other-data/mf-scheme-performance-details; 1 year returns on April 28, 2025

***https://www.amfiindia.com/research-information/other-data/mf-scheme-performance-details; 5 year balanced advantage fund returns as on April 28, 2025

# https://www.livemint.com/insurance/news/indias-grim-reality-over-98-of-senior-citizens-devoid-of-health-insurance-on-rising-costs-reveals-survey-11693062220213.html

## https://www.niti.gov.in/sites/default/files/2024-02/Senior%20Care%20Reforms%20in%20India%20FINAL%20FOR%20WEBSITE_compressed.pdf

^{^}https://timesofindia.indiatimes.com/business/india-business/number-of-frauds-rose-in-fy23-amount-involved-halved-rbi-data/articleshow/100619994.cms

^{^^}https://investor.sebi.gov.in/calculators/Networth_Calculator.html