The golden years of one's life are the time when one is supposed to enjoy each day without having to work for money. Experts say this is only possible if you make your money work hard for you and let it grow.
Many people suggest that equity should not be a part of a retired person's portfolio as it is risky. However, Shroff says in most cases not having equity in a long-term portfolio is riskier.
Retirement planning is ideally a life-long process, which must be done with proper planning and in the right way. The golden years of one’s life are the time when one is supposed to enjoy each day without having to work for money. Experts say this is only possible if you make your money work hard for you and let it grow.
Suraj Shroff, Founder, Infiniti Investments, says, “Investing and planning for retirement are usually categorized in 2 stages – Investment planning for people who have retired and Investment planning for people nearing retirement.” He further adds, “Every individual’s requirement and risk appetite is different and, hence, the investment and asset allocation changes accordingly.”
Investment planning during retirement: Post-retirement
Planning for retirement is done in various stages. Shroff of Infiniti Investments says, “During retirement, the corpus should be split into three buckets – Liquid Bucket, Stable Income Bucket, and Growth Bucket. The primary objective of the liquid bucket corpus is to have the money available at a short notice. The second bucket is to generate stable and regular income, while the third bucket is the growth bucket.”
According to Shroff, the liquid corpus amount should be equal to about 40 months’ expenses and can be kept in a mix of Bank FDs and short-term bond funds. For stable and regular income, an investor can invest in government-subsidized schemes like the senior citizen scheme and RBI Bonds, with a portion being allocated to debt funds with an SWP option to provide tax-efficient cash flow. Whereas for the growth option, investors should be invested in market-linked products like diversified equity funds, which can actually help the portfolio beat inflation. Experts suggest that the ideal asset allocation would be 15 to 20 per cent in the liquid bucket, 45 to 50 per cent in the income bucket, and the balance in the growth bucket.
Many people suggest that equity should not be a part of a retired person’s portfolio as it is risky. However, Shroff says in most cases not having equity in a long-term portfolio is riskier. A person at 60 still has a 20+ year horizon, which makes diversified equity funds a superior alternative to most other investments.
Investment planning for people nearing retirement
People planning for their retirement who are in their 50’s are in the most important phase of building their corpus. Usually, this is the time where income is at its peak, liabilities are getting closed and savings potential is the maximum. Experts say, for people in their 50’s, the strategy should be to aim for higher growth in the corpus.
Shroff says, “For such people, the appropriate asset allocation should be reasonably high in equity, with smaller allocations to international equity funds, debt, and a small allocation to gold as well to add diversification to the portfolio.” According to experts, people nearing retirement should also not shy away from equity and should add them to the portfolio with a 10+ year horizon.”