If you are a new retiree you have probably spent most of your adult life, a good 30 to 40 years accumulating and investing your hard-earned money to build a retirement corpus. Now that it is time to begin utilising your retirement corpus are you beginning to worry about protecting it?
Will my money remain safe in volatile times? Will it last me my entire retirement? Will I be able to cover expenses for years to come with increasing costs?
These might be some of the questions that are cropping up in your mind giving you sleepless nights. Post retirement planning is different from pre-retirement planning – limited or single source of income, rising costs and stagnating income, limited risk appetite and investment term are some of the aspects that make post retirement planning unique. Your worries can be laid to rest if you take some prudent steps to protecting your retirement funds. Let us take a look at what aspects you should be considering:
Protection from capital erosion
One of the golden rules for post-retirement planning is – ‘Avoid touching the capital’. The minute you start drawing down from your capital corpus to meet your expenses you will see a fast depletion of your savings.
Be aware of your monthly financial requirements and try to ensure that the mix of investments you choose can generate at least enough periodic return to suffice your monthly needs.
Protection from inflation
Simply earning enough to cover your current monthly expenses may not be sufficient. Inflation and the possibility of increasing age-related health expenses can become an obstacle. As expenses increase, if your income remains stagnant especially considering this may be the only source of income for most retirees, you may begin to fall short of money and start drawing on your principal amount. So, being overly conservative can actually be riskier than being overly aggressive
Choosing investments that have the ability to beat inflation with their returns could be the way to overcome this. This however may not always be possible considering the lower risk appetite a retiree has. Hence a bifurcation strategy can be followed here.
A part of your portfolio whose returns are intended to cover your fixed expenses could be put in safer and less riskier investment options. The balance can be put in slightly riskier investments. Re-investing the returns earned from them can lead to wealth creation which could be the buffer from inflation.
Protection from volatility
Losing your hard-earned money especially at the age when you probably do not have any other source of income is one of the biggest fears. This makes it essential to choose the mix of investments that balance your need for returns with your acceptable risk appetite.
Protection from contingencies
A financial, health or other emergency untoward event can cause a big dent in your retirement corpus. A few steps can be taken to be prepared for these:
Make sure you have adequate health insurance in place – to avoid needing to draw down a significant amount from your retirement corpus in case of health emergencies.
Have an adequate contingency fund in place which can be used in case of health or other emergencies. This can save you from having to liquidate investments at a loss in a panic situation.
The key principle of post-retirement planning is essentially to strike a balance between the return that you require for current and future needs and the risk that you can reasonably absorb as a retiree. Focus on wealth creation not wealth depletion. Assess your portfolio to see if it is safeguarded from the above aspects, even consider taking professional help to put a plan in place so that you can kick back and enjoy a stress-free retired life!
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.