If one is to enjoy life in the golden years, retirement planning is becoming extremely significant for anyone and it requires a lot of meticulous planning from the beginning of one’s career. That does not take away a bit from the importance of parking funds that one retires with, including funds from provident fund and gratuity that mature at the end of one’s working life.
Director, Wishlist Capital and retirement planning educator Nilanjan Dey says there are some golden rules that one should follow. So, while one should certainly be cautious, completely turning a blind to the fruits of market investment would be counter-productive.
Taking an example of a gentleman who retired after a long service of 35 years, Dey details a plan that will provide a constant source of income for him.
The retired man has a corpus of Rs 1 crore in his bank. He has a two BHK flat to live with his wife, and his children are staying in another city. So, he has to invest prudently.
Dey has taken the assumption that the person who has just retired is around 60 years old and would go on to live beyond 70. Another assumption is that he would require regular income to meet day-to-day expenses.
Stability with growth
Based on these assumptions, he says this individual can think of putting half his money, or Rs 50 lakhs in five chosen equity mutual funds. That allocates 50% in growth and 50% in income. “Divide equally for ease and convenience. These five funds must be all open-end, diversified mutual funds. This is his core portfolio,” says the investment strategist.
Dey’s advice: consider staying fully invested for a decade or more. The emphasis is on staying invested for the long-run to rule out market cycles and get the benefit of compounding.
He also sets a target of 15-18% CAGR. There is a rider here. Dey advises no withdrawals for the next few years, unless the individual has super-normal profits that must be booked!
The growth element is required since inflation is constantly corroding our wealth and it is necessary that one does not run out of savings in his/her lifetime.
The other half of the portfolio, which he describes as a satellite portfolio is quite different. This will comprise fixed-income instruments to ensure steady inflows (monthly preferred).
FDs, bonds, debentures, gilt funds
“This will be a mix of FDs (fixed deposits), bonds and debentures. It could also include gilt funds too,” he says. He also recommends medium-duration debt funds (AA+ profile will be a good idea).
The target in this case is to generate an overall 9-10% return without taking undue credit risk. This will ensure stability.
“Our friend can look forward to a fairly decent post-retired life (cigars and champagne occasionally),” he quips, apologising for the implicit assumption that the retiree is a male!
(Note: News9live does not make any investing recommendations, but merely provides information. The views are those of the expert. Readers should consult a certified expert for making any investing decisions.)
Putting retirement funds into a prudent mix of guaranteed-return debt instruments and market-related mutual funds is a constant query. Here is an option to straddle both options. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
