In the previous article of this series, Investment and Insurance Planning in different stages of life: Part 1, we had discussed some general guidelines for planning investments and insurance in the early stage of life when we are single. In this article we will we will discuss how to plan our investment and insurance in the latter stages of our life, when our children are grown up and after we retire.
When your children are grown up and before you retire
Investment: This is the stage of life when your income is at the highest level of your entire career. At the same time you are approaching several important life-cycle goals. Your children’s higher education and marriage are among the two most important goals in this stage of life. You are also approaching retirement. As you approach each specific goal, shift the investment allocated towards that goal from equity to debt funds. If you had started saving and investing for your children’s higher education and marriage, you would have accumulated a decent corpus by now. However, if unfortunately you are falling short, it is not prudent to prioritize funding expensive college education over your retirement planning. You should avail of educational loans for your child’s higher education. Once your children complete their higher education and start their careers, they can pay off the educational loan. You can claim deduction on the interest paid on your child’s education loan under Section 80E of the Income Tax Act. There is no upper limit and the entire amount of interest paid in the year is eligible for deduction. For your retirement planning, you should continue with your SIPs in equity mutual funds. However, as you approach retirement, you should rebalance your portfolio mix to have a greater allocation to debt or income funds. In this stage of life your equity allocation should be 40 – 50%, while your debt allocation should be 50 – 60%. The other important aspect of retirement planning is to ensure that you are debt free by the time you retire. If you have an outstanding home loan, you should try to prepay it part or full. You can claim 80C deduction for home loan principal payment. Since your salary is now at the highest level of your entire career, your EPF contribution will be substantial part of your 80C tax saving. With home loan principal payment, EPF and your life insurance premiums, you may not have to make any tax saving investments under 80C. But if you have to make tax saving investments, you can consider investing in tax saving mutual funds (ELSS), National Pension Scheme (NPS) and Public Provident Fund (PPF).
Life Insurance: Once your children start working and are financially independent, you do not need insurance cover to meet their financial needs. If you have multiple life insurance policies, with some of them maturing during this period, you may not have to buy new life insurance, provided you ensure that sum assured of your active policies are adequate to meet the needs of your spouse and other dependents, in the event of an unfortunate death. If the sum assured of your active policies are not adequate to meet the needs of your dependents you should buy additional term plans, but your total sum assured can be lower if you have financially independent children.
Health Insurance: If you still do not have health insurance cover, apart from the group health insurance plan of your employer, now is the time to get your own Mediclaim. Getting Mediclaim after your retirement is difficult.
When you are retired
Investment: After retirement, capital protection and regular income are the two most important financial objectives. Fixed income investments like income funds, fixed maturity plans, post office monthly income scheme etc are the preferred investment choices. You can consider investing in Senior Citizens Savings Scheme (SCSS). While capital safety is an important consideration when you are retired, with increasing life spans and high inflation, you cannot totally ignore equities. Mutual fund monthly income plans are excellent investment options for generating higher returns on your investment with limited risks. These plans invest 20 – 30% of their portfolio in equities, to boost the interest earned from debt investments with higher equity returns.
Life Insurance: If you have no income from a profession or business after your retirement, you do not need life insurance. The purpose of life insurance is to protect your family against the loss of income, in the event of an unfortunate death. If you have no income from profession or business, then the question of loss of income does not arise.
Health insurance: Health is an important aspect of our life at any age, but is extremely important at this stage. It is important that you have a long term health insurance plan to address your and your spouse’s healthcare needs, even in your retirement years. Senior citizens, who were covered under their employer’s group health insurance plan before retirement and did not have an additional individual health insurance or Mediclaim plan, have two options, upon retirement. Immediately on retirement, seniors can switch to the retail policy of the insurer offering the group insurance plan to their former employer. While the premiums and the policy terms may change once you switch to the retail plan, certain benefits like waiting period of pre-existing medical conditions, will be carried over from the group plan to the individual plan. Alternatively, you can consider buying an individual health cover from an insurer of his or her choice. Essentially this means that you are buying a new policy, with new terms and conditions.
Our financial and tax situation, life insurance and health insurance needs change in different stages of life. Accordingly our financial planning should be dynamic process as we progress through life. In this series of articles, we have discussed some general guidelines for planning investments and insurance at different stages of life. However, each individual has different financial situation and goals. An experienced certified financial planner or financial advisor can help you develop a plan that can meet your short term, medium term and long term goals. You should engage with an expert financial adviser, to help you prepare your financial plan and execute on it.