Given that inflation is spiraling and life expectancy is increasing, you need to make sensible investments today to live the winter years of your life in bliss. You cannot procrastinate or think about retirement planning when you are nearing retirement.
,As in all successful ventures, the foundation of a good retirement is planning.” – Earl Nightingale.
To thoughtfully plan your retirement, you need to ask yourself questions such as…
- When will I Retire?
- What do I desire to do during my retirement?
- What are my current savings?
- Will my investments help me build a respectable corpus?
- What is the average life history of my family?
- How many years should I plan for post-retirement?
- What is my monthly basic expenditure?
- At what rate inflation would grow
- What kind of expenses will I have to bear post-retirement, and what would be the future value of these?
- From where can I draw an income; generate cash-flow to fund my retirement needs?
- Which are my physical assets that can be monetized for my retirement?
- Do I have enough contingency corpus?
- How much should I set aside for my healthcare and medical needs
- Do I have adequate health insurance coverage?
If you have honest answers to these questions and invest wisely, you will never have to worry or think: Will my retirement funds last till my last breath,
You may say the future is uncertain. Of course, it is. But some sensible element of planning would make it possible to build the desired nest egg or corpus for your retirement.
,Life is full of uncertainties. Future investment earnings and interest and inflation rates are not known to anybody. However, I can guarantee you one thing… those who put an investment program in place will have a lot more money when they come to retire than those who never get around to it.” – Noel Whittaker (one of the best-selling authors on finance and retirement).
To invest for blissful retirement, you have plenty of choices –––Public Provident Fund (PPF), National Pension System, Bank Fixed Deposits, Mutual Funds, etc. You need to choose amongst them wisely and diversify your portfolio in such a way that you can potentially earn an efficient real rate of return (also known as inflation-adjusted returns).
Mutual Funds, as you may know, are one of the potent avenues for wealth creation. That said, make sure you invest in the best and most suitable ones assessing their risk-reward and a bunch of other quantitative and qualitative parameters. Do not simply go with the Solution-oriented Funds using the nomenclature ‘retirement fund’ for your retirement planning. Not all retirement funds are worth your hard-earned money.
Besides, Retirement Funds have a lock-in of 5 years or your retirement age, whichever is earlier. Thus, if the retirement fund you choose underperforms, you will be unable to switch to another worthy scheme until the completion of the lock-in period.
A myth exists that with a Solution-oriented Retirement Fund, you will not need to draw a personalized asset allocation plan for retirement. But the fact is that if you chart out an asset allocation that is best suited for you and invest in worthy avenues, potentially efficient real returns can be earned enabling you to accomplish the goal of blissful retirement.
Hence, if you choose amongst the other open-ended mutual fund schemes and in congruence with your personal risk profile and investment horizon (ie the number of years left for your retirement), and just rely on Solution-oriented Retirement Funds it could prove to be a rewarding experience. There are mutual funds for almost every need and risk appetite across both equity and debt categories.
Table: Indicative Category wise Allocation for One’s Retirement Portfolio
(This table is for illustration purposes only. For the allocation to funds best suited for you, please reach out to your SEBI registered investment adviser)
Say, you are in the age group of 25-35 years of age, have the stomach for very high risk, and have enough time before you hang your work boots; You may allocate around 90%-100% to various equity mutual funds, and 5% each in debt and gold, respectively. And as age progresses, review your allocation to equity. When you are just a couple of years away from retirement, the equity allocation must reduce.
To invest in equity mutual funds, you may invest a lump sum as well as take the SIP route. The latter can help you save and invest a certain sum of money for your retirement by investing regularly every month, ride out the market volatility (with the inherent rupee-cost average feature of SIPs), and help you build a significant corpus for your golden years. To give you an example, a monthly SIP of Rs 20,000 in a diversified equity fund can help you accumulate Rs 2.67 crore over 25 years, assuming you clock a 10% CAGR. That’s the power of compounding!
To conclude…
When it comes to planning your retirement, widen your horizon; don’t just invest in traditional investment avenues or Solution-oriented Retirement Funds; considering investing in other types of mutual fund schemes as well. Moreover, to ensure the power of compounding works in your favour, start early, and invest in the best mutual fund schemes.
(The author is the Chief Business Officer, Quantum AMC.)
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