Article

Managing Investments on Nearing Retirement
May 14 , 2013

If you are in your 50s and retirement is a decade or less away it is high time you gave your investments a serious check. If you have been watching over it all through these years you might not have anything special to do but if you have been casual about it, you still have some time to put them in order before the time comes to live off your investments.

Prioritize investments

By now you would have been done with the chunk of financial responsibilities like home loan EMIs, children's education and marriage. If any of these is pending then you need to keep funds meant for these in less risky assets depending on how soon they are expected to realize.

If you are still running home loan EMIs arrange to clear them off before retirement at best.

Having the right asset mix

Your investments should be allocated in such a way that they are protected from market risks but at the same time have enough growth opportunities.

If you see requirement of bulk funds say between 3 and 5 years, say for child's marriage, these can be invested in a balanced fund.

For goals coming within 2 years it is best to stick to debt funds or FDs.

The remaining funds which are required only post retirement you can allocate in approximately 50-50 proportion (ideal break-up would vary with individual situation) in income assets and growth assets. As you move closer to retirement your investments should progressively shift from equities to debt in a systematic manner.

Choosing the right asset types

Equities and equity funds offer growth prospects. Since equity mutual funds invest in shares of a number of companies which are selected by expert fund managers your retirement investment in equities should be through equity mutual funds only.

FDs, NSC, debt mutual funds, etc give capital protection. Debt mutual funds with growth option will minimize your tax on withdrawal as compared to FDs, especially if they are huge deposits.

When you are 5 years away from retirement you can stop fresh investment in equity mutual funds and instead invest in MIPs. These have 80-20 allocation in debt and equity respectively.

Plan exit strategy

When your retirement arrives you would not be using the entire accumulated corpus at once. You would be spending it over the following 15, 20 years or so. So you need to plan how you will exit your investments.

With mutual funds it is best to have the Systematic Withdrawal Plan (SWP) option which will release funds to your bank account every month or quarter, as you mandate.

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