Source/Contribution by : NJ Publications
The ultimate goal of every investor is collecting a big corpus to secure a peaceful Retirement. So, you invest throughout your life and once your retirement approaches, you have your retirement corpus in your hand. Now what do you do, is it the end of investing? Shall you keep the retirement corpus in your bank account and keep nibbling at the big piece of cheese inch by inch? No, you can't do that, you can't let your life long perseverance die in your saving account. You need to have a post retirement investment plan to deliver justice to your money. Also, you may live long, so the next 3-4 decades are at the mercy of your retirement corpus, you don't want to run out of money in the last 10 years, so your nest egg must be utilized in a way that it lasts you until your D Day.
There'll be no new addition to the corpus, hence you must spend and invest wisely. So what should be your approach to investing after you retire?
There are various approaches that you can follow, depending upon your risk appetite. The Risk Appetite is dependent upon a number of factors like:
- Passive income source if any, like pension, rental income, interest income, and the amount of income;
- Whether you live in your own or rented house;
- Other assets that you may own like property, gold, stocks, etc,;
- and your attitude towards Risk.
Your Portfolio Allocation between Equity and Debt will largely depend upon your Risk Appetite, the sum of the above factors. Although we suggest retired investors to concentrate on limiting risk, yet if you have a stable financial background and a high risk appetite, then you can expose a major chunk of your retirement corpus to market linked products and vice versa.
There may be various approaches to Portfolio Management after retirement, which are different from the way you have been managing your portfolio during the working years. Some investors prefer securing their basic monthly expenses first by investing a portion in products which may give them a monthly income at least equal to their expenses and dedicating the rest to products with a high growth potential. While there are some investors who break their Portfolio into parts, the early, middle and last stages of retirement and invest accordingly. And there may be some who invest largely in Equity initially and as they age, gradually increase the Debt component by selling of Equity. And likewise there are many approaches, depending upon individual needs and preferences.
We suggest you to sit with your advisor and figure out your Portfolio Allocation and Investing Approach, which is in line with your financial position and Risk Appetite. Devise a financial plan and review it from time to time like you have always been doing.
Whichever approach you choose, you must be mindful of certain key points, which are as follows:
> In absence of a regular source of passive income, do not expose your money to excessive risk. A large chunk of the Portfolio should be invested in products where money can be withdrawn easily, without incurring any loss to the Principal.
> If you have any outstanding loans, then before investing, secure your mental peace by paying off your debt.
> Increase your emergency fund, an emergency can lead to a serious financial crunch since now there is no hope of a monthly pay cheque coming in to rescue you. Plus medical emergencies are also likely to rise.
> Do not limit yourself to traditional investing products, explore newer options like bonds, debt mutual funds, company deposits, etc., even if your risk profile demands you to limit yourself within Debt. The modern products are capable of delivering better returns, better flexibility, liquidity and investing convenience.
> Don't invest in products where the volatility is more than you can tolerate.
The bottomline is, Retirement isn't the end of investing, Investing is important, even though if you have a very large corpus or limited expenses, it is likely to be exhausted if not invested. Your Retirement is the beginning of a new life, now is the time to do things that you've always wanted to do. It's the time to pursue your passions, and you can live your entire retirement life to the fullest by planning for your future and investing right.
