Why Is Liquidity Management Vital In Retirement Planning?
Retirement planning involves ensuring sufficient financial corpus for old age, as well as adequate cash flow, risk coverage, and liquidity.
Retirement planning involves ensuring sufficient financial corpus for old age, as well as adequate cash flow, risk coverage, and liquidity.
Liquidity management in retirement planning
Experts advise creating an investment portfolio aligned with one’s short- and long-term goals, like marriage, retirement, medical emergency, etc., or ensuring adequate funds for all situations. In a recent post on X, Radhika Gupta, CEO of Edelweiss Mutual Fund, emphasised the need for liquidity in investments for seniors, saying, “We talk of more debt and less equity risk for senior citizens. But illiquidity risk is far more problematic. As you get older, get more liquid.” Her message drew significant attention from users, many of whom responded to it.
She highlighted three situations related to property investments:
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Although property investments are considered safe, investors often forget that a property may not be readily liquidated. Gupta’s post underlines some of the risks in property investments. While she highlighted property, assets like physical gold may not also be as liquid as expected.
Also Read: Seniors, Are You Being Financially Abused, How To Know, What To Do?
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Ensuring cash flow post-retirement is critical in financial planning. Thus, retirement planning is more than just saving and investing. It must ensure sufficient cash flow or liquidity in old age. If a person creates assets and builds a retirement corpus but does not consider liquidity, the investments would not be useful when a senior person will it the most.
It is often seen that seniors have an asset in their name but do not have money for daily expenses, and then they have to sell the asset to meet their regular expenditures. Cash flow is crucial for all, especially senior citizens, as their income sources are generally limited to pension, rental income, or some side hustles. If the income source stops, they will be left with no money. So, a reliable cash flow and liquidity of investment are essential. Otherwise, there will remain no point in investing if the individual is unable to get the money when needed.
Gupta pointed out two risks, high debt and less equity, that were often discussed and advised to senior citizens. Typically, seniors are advised to pay off their debt well before retirement, ideally in one go. Similarly, equity is considered risky, and seniors generally avoid taking exposure to equity instruments.
Also Read: Premature Withdrawal Of NBFC Deposits To Be Allowed From 2025: What You Need To Know
Clearly, these risks must be addressed, but ensuring a regular cash flow can’t be ignored. In a portfolio, one needs to plan for cash flow, growth, inflation, liquidity, stability, and emergency risk coverage.
Hence, retirement planning is not just about saving and investing for the long term but also about planning a secure financial life during the golden years.
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Old-age and retirement homes provide various facilities for older people to spend their golden years.
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