Page 49 - Banking Finance September 2019

FEATURE

FIVE THINGS THAT
FIVE THINGS THAT
FIVE THINGS THAT
FIVE THINGS THAT
FIVE THINGS THAT
CAN MAKE YOUR
CAN MAKE YOUR
CAN MAKE YOUR
CAN MAKE YOUR
CAN MAKE YOUR
RETIREMENT
RETIREMENT
RETIREMENT
RETIREMENT
RETIREMENT
STRESS-FREE
STRESS-FREE
STRESS-FREE
STRESS-FREE
STRESS-FREE
E nsuring adequate income throughout the risks is to build a staggered or laddered portfolio of
retirement period is the principal financial goal for
diversified debt products of different tenors. This includes
senior citizens. Not everyone is entitled to an
short-term bank deposits, ultra-short term and low duration
employer-sponsored pension and most people
Scheme, short duration and corporate bond funds, bonds
have to depend upon the corpus that has been created in funds for the short-term horizon; Senior Citizen Savings
the working years to generate the income required. and debentures with tenors up to five years, bank deposits,
Longevity risk, or the risk of outliving the available corpus, and other deposits with up to five years tenor for the
is the biggest stress for senior citizens. Here are five things medium term; and bonds, deposits with longer than five-
you can do to make the most of the corpus that is available year tenor and long-term debt funds for the long-term
to you in your retirement years. tranche. The short-term products will mature early and free
up capital for you to invest at higher rates if interest goes
Income portfolio up. If interest rates fall and you have to reinvest at a lower
rate, the impact on your portfolio is lower since only a small
You need a strategy in place to earn an adequate income
portion gets reinvested at the lower rate.
from diversified sources and protect the corpus from losing
real value on account of inflation.
Make your money grow
First, have an income stream that is assured for essential Conventional wisdom tells you to stay away from taking any
living expenses. This can be constituted by pension, if any, risk in your retirement portfolio and invest only in safe assets.
and guaranteed and assured income products such as Senior However, given that retirement years can be lengthy, the
Citizens Savings Scheme, bank deposits and bonds. Defer effect of inflation, failing health and other changes in life
buying an annuity as far as possible to maximize your payout will take a toll on the corpus. In this scenario, the higher
in the later stages of retirement when you want assurance returns and compounding benefits from growth assets like
and simplicity from investment products. Dividends from equity will help protect your corpus.
equity investments and rental income also constitute
periodic income earned on investments with the added It would be a good idea to incorporate growth assets such
advantage of being inflation-protected, although there is as equity for the last tranche of the corpus where the funds
assurance on the income, especially dividends. are required at least 15 years from the start of retirement.
The higher returns that this block of funds is expected to
Investing for income comes with the risk of missing out on earn will pull up the overall returns, without risking the
better returns available in the future once the corpus has availability of income to meet expenses in the initial years
been tied up. Then there are the reinvestment risks of retirement. As the years in retirement come down, the
associated with debt instruments. One way to mitigate these exposure to growth assets should also reduce, thus

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