FINANCIAL TIPS FOR RETIREMENT PREPARATION
1. Ground reality
· We are often advised that fixed income is better within five to ten years of retirement.
· Most people nearing retirement are heavy on fixed income assets and probably real estate.
· However, these debt-based assets actually underperform the inflation rate in the long run.
· Some savers are lucky to have income streams like pension or rental income that are reasonably inflation-linked.
2. Rule number zero - Bifurcate
· The battle for the preparation for retirement has to be fought on two fronts -
o A source of steady guaranteed income for basic household expenses and
o Long-term investment for protection against inflation.
3. Regular income
· Estimate the regular income needed and start creating an asset source for it.
· This will also include other incomes like pension and rent.
4. Long-term investment
· Choose conservative equity options, like hybrid mutual funds, for meeting long-term goals.
· The minimum period should be five to seven years for the risk level to be acceptable.
· A short term of three to four years is also acceptable, but if you are investing in anything less than that, then you should reconcile yourself to higher volatility.
5. Goal-fulfillment
· As your long-term goals become short-term, you should convert equity funds to fixed income instruments proportionately.
· When saving for a pre-defined goal, shift the goal-fulfillment amount to fixed income a minimum of three years before that time to avoid any erosion due to volatility.