How to Allocate your Assets Efficiently after Retirement

Retirement marks a new chapter of your financial journey, as the financial and investment planning goals of a lifetime come to fruition. Yet many retirees still have a nagging fear that they might run out of money, since their steady salary income stops while their expenses endure. There may be concerns over EMIs, loan payments, how to manage household and essential expenses, medical expenses etc.
Apr 2023
5 mins read
To alleviate these worries, you might want to recalibrate your investments for retirement planning. Being too cautious might push you towards low-return instruments, which would leave your retirement corpus vulnerable to inflation. Thus, it’s vital that your post-retirement investment planning considers the need for security as well as wealth creation. To optimise your goal planning, it’s essential to choose the right instruments and allocate assets in the right proportion to achieve your goals successfully. As you weigh your personal finance investment options, here are some tips to help you play it right:

  1. Your investment portfolio focus should change after retirement. Earlier, your focus was mainly on building your retirement corpus, as you were earning and investing with a growth mindset. You had less risk since you enjoyed job security and had time on your side, with retirement many years away. Now, after retirement, the primary goal for your portfolio is to generate a stable income, as opposed to capital growth.

  2. Your asset allocation should be redefined for your post-retirement needs. At this stage of your life, a strong portfolio isn’t just one which offers a steady income, but one that has the right mix of assets. This means distributing your retirement fund into various investment instruments. Asset diversification is essential for efficient asset management, but it depends on your financial scenario:
    - If, say, you have a small retirement corpus, your only asset is your retirement corpus. In that case, 100% of your asset allocation may be focused on income generation. You may invest in debt instruments with low yields for a regular income.
    - If you are retired and have no liabilities, your investment pattern will be different. You may want to allocate 25% of your assets for protecting your corpus, while allocating 75% for income generation. You may invest in debt instruments for income generation and equity instruments for corpus protection.
    - If you have a retirement corpus as well as a rental property that takes care of 50% of your monthly expenses, you only require 50% of your retirement corpus. This gives you more possibilities. You may want to diversify 50% of your assets in income generation, 40% in corpus protection and 10% in growing your corpus. Choosing a mix of debt, hybrid, and equity instruments may be ideal in this case.

  3. You must know your risk profile in order to meet your investment goals. Your risk profile is based on your risk attitude and risk tolerance. Risk attitude refers to your comfort with market fluctuations, while risk tolerance refers to your financial ability to bear the loss of returns as a result.
    For example, if you have a greater risk tolerance, you may want to allocate more funds to equity instruments rather than fixed income instruments. This may also be applicable in case you want to achieve long-term financial goals. On the other hand, for short-term goals, you may prefer bonds and other fixed-income instruments. Risk tolerance is inversely proportional to age – the older you get, the less risk you can handle. Hence, after retirement, your assets should slowly shift from equity to debt instruments. An ideal investment strategy balances risk and diversifies assets among stocks, fixed income instruments, real estate etc.
Once you know your investment portfolio focus and risk profile, follow these four steps to guide your post-retirement asset allocation:
  1. Accumulate your savings – Pool in your savings from different income sources, such as Provident Fund, gratuity, fixed deposits, shares, endowment plans and cash.
  2. Calculate your expenses – Calculate all your expenses and liabilities. This will give you an idea of exactly how much of your retirement corpus you will need to manage your expenses. Even if it is a small amount, regularly withdrawing money from your corpus will eventually drain it. Some of the common expense heads are household expenses, health costs, lifestyle expenses and emergency expenses.
  3. Calculate the returns you need – Once you know your savings and expenses, it will be easy to calculate the returns you need. This will define your investment strategy.
  4. Identify the investment instruments required – You can choose from a number of instruments for optimal returns, including savings accounts, fixed deposits, Post Office Monthly Income Scheme (POMIS), Post Office Senior Citizen Savings Scheme (POSCS) and mutual funds (debt, equity, and hybrid).
A comfortable retired life depends on how well you plan your personal finance and budgeting. With the right asset allocation and distribution, you can meet all your retirement goals successfully and strengthen your financial independence.

Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully.
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