Kolkata: Financial independence in post-retirement life is extremely independent. Most individuals don’t have any regular income like a job or rental income after retirement. They have to solely depend on the income from prudent asset allocation. Therefore, the significance of asset allocation cannot be overestimated for anyone. Investment strategists emphasise that the focus of asset allocation after 60 should be generating a steady cash flow to defray the regular expenditures in life and to ensure that a part of it also attempts to generate creation of new capital.
“The crossover from a general citizen to a senior citizen is not a physical development. It is also a psychological one. Diseases and frail health catch up with many while other costs mostly remain intact. Therefore, regular cash flow assumes paramount importance to most in post-retirement,” remarks Nilanjan De, director Wishlist Capital and an investment strategist for quarter of a century.
50-30-20 principle
This is a widely accepted strategy. In other words what it signifies is that one should divided the post-retirement corpus into three groups — debt, equity and liquid funds. The number 50 signifies that 50% of the money should be deployed in debt which will generate solidity and safety and predictable returns. The number 30 indicated 30% allocation to equities, and the rest 20% should be invested in liquid funds. This strategy ensures capital appreciation and safety, the latter being of crucial importance to a retired individual. The equity will attempt capital appreciation while the liquid funds can cover unforeseen expenses, while generating decent returns. Medical emergency is the biggest unforeseen incident that can happen to a senior citizen.
Systematic Withdrawal Plan
This is a widely practiced strategy too. SWP is usually done in mutual funds. SWP refers to a method where investors withdraw a fixed or variable amount monthly, quarterly or even annually from their investments. Mirae AMC describes it as a reverse SIP. While the investor withdraws a steady amount, the rest of the corpus keeps growing the various funds. However, before beginning a SWP, one should have a clear picture of the regular expenses that you incur every month. The SWP amount is determined accordingly. A personal finance investor or a knowledgeable MF distributor can help you plan a SWP to suit your needs.
Life annuity
Annuities are also growing in popularity. Annuities help one to receive a regular monthly income for a fixed period of time or for the entire life. There are a lot of annuities now in the market. They can be immediate, deferred, fixed or variable and insurance companies which offers such products can tailor the annuities to suit your need. Since many companies offer annuities one should not rush for the first offer that reaches one but should explore the market and compare.
70-30 principle
This is a more conservative asset allocation strategy compared to the 50-30-20 principle mentioned above. It says that the focus of asset allocation should be on debt which should have 70% of the corpus. These instruments are far safer and offer guaranteed returns and can be SCSS and FDs in banks. One can also opt for sovereign bonds. if one has a significant amount in PPF, it can be continued since PPF allows one to withdraw money once a year. The remaining 30% of thee corpus can be allocated towards balanced mutual funds and even carefully selected equities to beat inflation.
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