Financing retirement options for seniors in 2021.
After a certain age, we all have to face the consequences of retirement. How we live our retirement depends a lot on our financial planning. One of the significant concerns that bother older adults is managing finances, especially after the end of their earning period. Planning and managing finances become more crucial for seniors who want to live in Retirement Communities.
A good retirement plan is one that not only offers a steady flow of income but also keeps the tax liability at bay. In most cases, the retirement age is around 60, whereas the average life expectancy is about 80-90. This means that seniors need to have a retirement that could look after their financial requirements for at least 20-30 years. Hence, building the right retirement portfolio is essential. It might seem challenging, but the earlier you start planning, the higher are the chances of living a comfortable life post-retirement.
Below we have mentioned few financial retirement options for older adults. Instead of investing funds in a single option, a retirement portfolio with a mix of these options would be more beneficial.
Table of Contents
The non-earning period of older adults can lie anywhere in the range of 20-30 years. Thus, investing a small percentage of retirement funds in mutual funds could be very fruitful. Mutual funds tend to have higher liquidity. Besides this, these equity-backed products act as a steady source of income for seniors.
The best thing about investing in mutual funds is that the risk involved is much less than that of investment in the primary market. Also, the investment return is quite high compared to various other investment options ( like FDs, etc.).
Pension funds are one of the most popular retirement plans. The risk associated with this investment option is very low. Hence, if you are looking for a safe investment option, it is worth your consideration. Some of the significant advantages of investing in pension funds include tax relief, employer contribution, compound interest, and guaranteed regular income post-retirement.
Though a pension fund is a low-risk investment option, the returns earned on these investments are also quite low.
Tax-free Bonds are another excellent investment option for seniors who want to invest their money in a risk-free investment scheme. Generally, these bonds are issued by government-backed institutions. The bonds are listed securities, hence they can be easily bought and sold on stock exchanges. The interest earned on these bonds is tax-free.
These are long-term investments with a maturity period of 10-20 years. Therefore, it is advisable to invest in these bonds only when you are sure that you won’t require funds for a longer period. In addition to this, the interest pay-out is generally paid on an annual basis. Thus, it may not be able to fulfill the regular monthly income criteria for older adults.
A reverse mortgage can be an excellent way to earn a steady income for individuals falling in the age band of 62 or above. This type of mortgage is more like a cash-out refinancing. Under this scheme, the seniors can convert their property equity into spendable cash. Besides boosting cash, some other advantages of this scheme are that seniors continue to own their homes and thus can age gracefully among their loved ones.
The payments received under a reverse mortgage are not taxable. Though the scheme seems to be very attractive, it does have some disadvantages also. Some of them are, Reverse financing which involves many costs like insurance costs, lender fees, closing costs, etc. Rusk of foreclosure in case of any failure in payment of property taxes, inability to maintain property insurance, etc.
With time, the cost of living tends to increase. In our golden age, besides regular expenditures, we might also require health-related services like physiotherapy, hiring caregivers, etc. Thus, investing in a senior living community is worth your time and money. If you are a pet lover and look forward to being a pet owner in the later years of your life, then investing in a “pet-friendly retirement villages” would be a better option. At such facilities, the cost and resources are shared by the people living there. Thus, it allows seniors to live a better lifestyle, which otherwise might not be affordable for older adults who live alone.
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Financing retirement options for seniors in 2021 | Abacus Life