Retirement implies relaxing. During retirement, everyone wants to lead a life with less or no worries. And, especially without any financial worries. So, to have a relaxing retirement, you need to make sure your investments are not too relaxed. All your life you would have struggled both with your earnings and investments. Having money saved for retirement isn’t enough. You need to make sure that it is helping you lead a comfortable life. Investments don’t end with your retirement. Everyone needs to have a post retirement investment. The cost of making mistakes is higher in retirement, as there is little recourse available to make up for wrong decisions. Therefore, it is important to have your post retirement investment well planned out. Here are 4 tips that will help you:
Don’t play too safe
Attempting to protect your retirement fund, you may actually be putting your retirement at risk. Most investors prefer investing their corpus in safe options during retirement. The aim is to protect the principal and get assured returns. Risk is not even in the question. Though the concentration is on protecting the principal, investors are missing out on the fact that their actual value of corpus is eroding. In other words, in case of a long retirement, inflation would have an impact on your corpus. The real value of your money would actually go down.
Therefore, rather being too safe with your post retirement investment, it’s advised to have appropriate equity exposure. This will help in addressing inflation. Annuity Plans might not be that profitable as you would have thought. As these products are compounded for a long term for which income has to be provided and this would bring down the periodic income.
Being Adventurous – not recommended
In younger days you would have been quick a risk-taker, but when it comes to retirement, you need to sober down. Post retirement investment isn’t the same as your previous investments. At this stage, you shouldn’t let the markets dictate your investments. To earn higher returns, having too much equity implies too much risk. At this stage in life, market corrections may have an impact on your investments. With too little time in your hand to wait through one full market cycle, you need to aim to have the right balance with your asset allocations. Have an investment portfolio that is well-diversified across asset classes and products. Ensure you are not too adventurous with your allocations.
Have a cushion
Having regular income during retirement is good. But what if that’s not the case? Are you prepared for it? A little planning will help you protect your income against bad market conditions. One of the best yet safest way to do this is having a cash cushion. During a market crash or during a low-interest period, this will come as a savior. Have a cash balance that is adequate to meet your three to five-year expenses. It might sound huge, but only this can help you from not liquidating your investments at their lowest value.
During profitable times, try to rebalance your portfolio and use the gains to increase or refill your cash allocations. This cash that is required for your immediate consumption should be invested in low risk and high volatile instruments. Safety and returns should be the only priority.
Gains from your investments or income from a pension, is taxable. You need to aim to minimize your taxes. For instance, money invested in debt funds for 3 or more years, can be withdrawn systematically through Systematic Withdrawal Plans (SWP) to reap the benefit of indexation on long-term capital gains.
Continue to have an emergency fund
Importance of this will never change. Be it during your 30s, 40s, 50s or during retirement. The only thing that changes with age is that this fund should get bigger. The need for an emergency fund increases with age, as the chances of your illness increases. Even though you have health insurance, to meet the uncovered expenses your regular income wouldn’t be sufficient. During your younger days, the emergency fund would act as a fall back cushion during no income days. While during retirement it is for large unexpected expenses.
There is a high possibility that all the plans and assumptions made during your younger days about retirement can go wrong. To keep your retirement stress free and relaxed, all you need to do is have a plan for your post retirement investment. Do not forget, flexibility and liquidity should be the key features for your investment portfolio. In fact, you need to be a lot more careful with your post retirement investment plans. In case you are unable to plan out your post retirement investment, consult a financial advisor who will be able to do your asset allocations and help you with your investments.
For a happy retirement have a post retirement investment plan.