1. We are often advised that fixed income assets are better within 5 years of retirement, but actually underperform the inflation rate during our long retired life of 20+ years.
2. Some savers are lucky to have income streams like pension or rental income that are reasonably inflation-linked.
3. Retirement preparation battle has to be fought on two fronts -
a) A source of steady guaranteed income for basic expenses during retirement, and
b) A long-term investment for protection against inflation during our retired life.
4. To avoid erosion due to volatility, for fulfilling pre-defined goals prior to your retirement period, you should redeem earmarked equity funds (otherwise the more risky ones) before 3-5 years and place the proceeds in a fixed income product, say a flexi-deposit bank account, for meeting the goals.
5. Similarly, before 1-2 years of your retirement, an amount equal to 25 times of estimated annual retirement expenses, should be invested in a Balanced equity fund, to work as your perpetual retirement corpus, by redeeming more equity funds from your current portfolio to that extent, and which will take care of both debt and equity allocations for income and growth simultaneously.
6. Thereafter, any surplus equity funds, can be redeemed for investing in an ELSS fund, for tax savings, or in a Multicap fund.
7. For availing full LTCG tax benefits, equity redemptions, or switches, should be spread over a few years.
8. After retirement, annual withdrawal of 4-5% from the Balanced equity fund can be done for meeting regular expenses, while the fund continues to grow by the power of compounding.
9. As the 4%-5% withdrawal rule presupposes that your retirement corpus would be in a position to maintain this differential between its annual earnings and inflation rate at all times, hence the necessity to invest in a Balanced equity fund, instead of a pure debt fund, as it succeeds in doing precisely so over the long-term.
10. The Multicap fund can be used for out-of-the-way expenses, as well as "unsystematic" investments at your convenience, for finally bequeathing a healthy corpus to your near and dear ones!
2. Some savers are lucky to have income streams like pension or rental income that are reasonably inflation-linked.
3. Retirement preparation battle has to be fought on two fronts -
a) A source of steady guaranteed income for basic expenses during retirement, and
b) A long-term investment for protection against inflation during our retired life.
4. To avoid erosion due to volatility, for fulfilling pre-defined goals prior to your retirement period, you should redeem earmarked equity funds (otherwise the more risky ones) before 3-5 years and place the proceeds in a fixed income product, say a flexi-deposit bank account, for meeting the goals.
5. Similarly, before 1-2 years of your retirement, an amount equal to 25 times of estimated annual retirement expenses, should be invested in a Balanced equity fund, to work as your perpetual retirement corpus, by redeeming more equity funds from your current portfolio to that extent, and which will take care of both debt and equity allocations for income and growth simultaneously.
6. Thereafter, any surplus equity funds, can be redeemed for investing in an ELSS fund, for tax savings, or in a Multicap fund.
7. For availing full LTCG tax benefits, equity redemptions, or switches, should be spread over a few years.
8. After retirement, annual withdrawal of 4-5% from the Balanced equity fund can be done for meeting regular expenses, while the fund continues to grow by the power of compounding.
9. As the 4%-5% withdrawal rule presupposes that your retirement corpus would be in a position to maintain this differential between its annual earnings and inflation rate at all times, hence the necessity to invest in a Balanced equity fund, instead of a pure debt fund, as it succeeds in doing precisely so over the long-term.
10. The Multicap fund can be used for out-of-the-way expenses, as well as "unsystematic" investments at your convenience, for finally bequeathing a healthy corpus to your near and dear ones!