If the retirement is only a few years away, it's time to shift a major chunk of your accumulated funds from equities into debt assets.
Retirement is a goal that takes several years to achieve. To have a comfortable amount on retirement and retire peacefully is what most of us dream of. But, those who are nearing retirement amidst the Covid-19 pandemic may have to give a hard look at their plans. Covid-19 has thrown up unprecedented challenges and may have derailed the retirement plans of many.
For those who are nearing retirement, the asset allocation pattern may need some level of modification. Given the rapid and drastic change in the economic environment that the Covid-19 pandemic has brought about, it has become all the more important to give a re-look at the financial position before you get ready to hang up the boots.
Your investments, over the years, that are directed towards retirement may have included equity mutual funds, Ulips, NPS amongst others. You would have accumulated a sizeable corpus by now. This wealth needs to be protected and put to good use so that a regular income starts flowing during the retirement years.
The first thing that you should do is take stock of the number of years to retirement. If the retirement is only a few years away, it’s time to shift a major chunk of your accumulated funds from equities into debt assets.
This you need to do to protect your capital as debt is less volatile than equities. Consider this – In 2020, the market crashed by over 30 per cent in a span of three months when Nifty 50 touched a Covid-19 low of about 7500 level in March that year.
The fund value of your investments would have come down drastically but have rebounded to higher levels by now. The idea is not to leave things to chances and start shifting funds from equities to debt assets at least three years away from retirement.
Secondly, if you are facing a cash crunch in these times, do not contemplate taking money out of your provident fund to meet short-term financial needs. In doing so, you are jeopardizing your retirement savings and may even have to look for a secondary source of income after retiring.
Thirdly, do not take unnecessary risks with your money at the fag end of your earning period. Even if you are falling short of your retirement target amount, you need to carefully plan your investments over the next few years to retire comfortably. A mix of hybrid funds with a bit of equity may help you but over-exposure to volatile assets, such as equities may not be the right approach. “If you are nearing retirement, you need to devise a plan for 100-years of comfortable living, as life expectancy is increasing and rising inflation is eroding the purchasing power of money,” says Vishwajeet Parashar, EVP & Chief Marketing Officer, Bajaj Capital.
Fourthly, taking a moderate risk may still be required in your retired years. Therefore, some portion of your retirement funds may have to be deployed in equities assets such as large-caps or hybrid funds with the aim of repairing the benefits over the long term. “You can make use of the SWP feature in mutual funds to fetch a regular income to meet your retirement needs” adds Vishwajeet.
Fifthly, as the life expectancy is increasing and making provisions for regular pension for both self and spouse is extremely important. Make sure you allocate funds into fixed-income and market-linked plans to ensure a regular stream of income for 3-4 decades of the non-earning period after retirement.