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Wednesday, November 29, 2017

How to use your accumulated wealth systematically for retirement or sabbatical

The discussion is always on planning a new thing, making a new investment, buying a new car, seldom we think or plan on how to wrap-up. What to do with the proceeds of fixed deposit maturity amount or an insurance payout. Planning helps, not only in beginning also in wrapping up and moving on. What after we reach the goal, after our equity investments hit the target, it is equally important to have systematic process to sell-off your investments utilise the proceeds.


Everything has a shelf life or an expiry date, however rude may it sound, human too are born with an expiry date. We don't see things ending, we dieing, losing, we like clinging to our stuffs and dont make most of our investments. If we take a case of the investment world, we don't often refuse to see the asset class dooming. We love to ride the bull, and anxiety bites when bear strike! Every asset class has its performance cycle and as an investor aligning our goals with the performance of the asset class is important. Even financial investments too have expiry dates. Like life insurance comes for a term and fixed deposits come with maturity date.
For the instruments which doesn't have an expiry date need to have a periodical review on their returns. I am not here getting into the physical assets like gold , yet will have a pointer on real estate investments. I am focusing on financial assets like equity and open ended mutual funds especially. 

What do you do with asset class which are perpetual in nature like equity, open ended mutual funds and even ULIPs with long term 20 year maturity period. Return on the equity is amazing on the long term. But how long is long for you is purely upto your goal and comfort level. Also, equity market with its long term wealth creation is known for its volatility. Any investment should be attached with a goal. It could be retirement planning, child's education or summer holiday in europe. If we use-up the sum for a particular goal, we are sorted. But if the sum is saved-up for a retirement or a sabbatical, here are few ways you could look at - 

We could have few systematic process to make the most of financial plan at every stage of life.

Few ways to use the accumulated wealth-

Systematic Withdrawal Plan - Exactly the same concept of SIP, in this process you could chose a specific sum or units for withdrawal from your folio, which will be credited into your designated bank account, with this you will have a regular income every month. chosing a hybrid or short term debt fund is an ideal option for this.

Monthly income plan - A lump-sum amount, proceed from PPF/ EPF or full and final settlement can be put under such scheme. MIP schemes are debt heavy funds, with marginal equity exposure upto 30%, making it more consistent on returns. However, the dividend is not guaranteed, subject to the performance of the fund.  

Deferred payment on Insurance proceeds - Incase of unfortunate demise of an earning member of the house, assuming he/ she would be insured, the nominee is entitled to get a lump-sum amount of the sum-insured. Often the nominees are unaware bout how to prudently use the money, it is a good option to chose deffered payment options to secure regular income for a long period of time.  

Reverse mortgage of house - This is still unconventional concept in India, but it is taking shape. For anybody above 58 years, this is an option for regular monthly income. In simple words, this is exactly opposite to conventional home loan. Ideally for senior citizen, is the borrower pledges the property to a bank and get a regular income till the end of his life. The bank in this case disburse loan periodically to the house owner, end of the term, bank takes the house or sell it, additional amount if any from the proceed of the sell is passed onto the legal heir.

It takes sweat, blood and discipline to create wealth, but once it is created, we must be prudent in-terms of utilising the proceeds with prudence. Happy investing, happy spending. For any query on money management I am accessible at #how-to-use-your-accumulated-wealth

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