Last week we discussed how you should save for your retirement during your working years. This week we assume that your working life and the stage of accumulation are about to end. This is a crucial milestone when you need to rearrange your finances so that you can make the money that you have accumulated last as long as you live.

Pointing to how your financial situation changes at retirement, Kartik Varma, co-founder of Gurgaon-based iTrust, a financial advisory firm, says: “Your salary income stops. Your healthcare related expenditure rises, one, because you are no longer entitled to health insurance coverage from your employer, and two, because you are aging. You will also not get fringe benefits like travel and entertainment expenses that you earlier got from your company, so these expenses could go up. On the other hand, some expenses, like on petrol, would decline because you would no longer travel to office everyday.”

When you are working, the risk that you run is that you may die early, leaving your family without a breadwinner. This risk is covered by purchasing life insurance (a term policy works best). But after you retire the nature of risk changes: now the risk you run is that you may live for too long! Typically, at the time of retirement, the corpus you have accumulated looks adequate. But remember that now you are waging war against inflation. If at age 60 Rs 30,000 suffices to meet your monthly living expenses, then by the time you are 80 you will need at least Rs 1,16,090 to meet those same needs (assuming a 7 per cent rate of inflation). So, how are you going to make your savings last and also grow for the next 20 years or more?

... contd.