Tips On Post Retirement Investment

If you thought that planning for retirement and being disciplined about managing money is over once you retire and when you have finally accumulated the required corpus, then you need to pause and reset your expectations. The rules remain the same even after you retire; they are just recast in a different mould. In fact, the cost of ignoring the rules or making mistakes is higher in retirement since there is little recourse available to make up for wrong decisions. Here are a few things you should keep in mind to ensure your retirement is smooth.

Don’t be too safe

In an effort to protect the retirement corpus, you may be putting your retirement at risk. Typically, after retirement, one invests in options that are considered safe and will not put the principal invested at risk and give assured returns. But risk is more than just default and volatility.

While the principal may be safe, the real value of the corpus may be eroding. A long retirement period may mean that the impact of inflation will eat away into the real value of the corpus and may expose you to the risk of running out of money. Make sure the portfolio has an appropriate dose of equity so that the returns take care of inflation and provide the moat that keeps your corpus from being drawn down quickly.

Locking the corpus into an annuity early on after retirement for a guaranteed income is another action that may be safe but not in your best interest. The lower returns in a product like an annuity will be compounded by the longer term for which income has to be provided and this will bring down the periodic income.

Don’t be adventurous

Letting markets dictate your investment decisions in retirement may mean too much equity and attendant risks at a stage when you cannot afford to do so. A large corpus available to invest and the promise of high returns whether from equity investments or other products may tempt a larger-than-prudent investment at this stage. Markets may hit a bad patch and take a couple of years to recover. Or, the high-yielding investment may disappear like many of the ponzi schemes retirees have fallen prey to in the past.

 Let asset allocation drive investment choices. It takes away the impact of recent experiences, good or bad, from investment decisions. Build a diversified mix of stocks, bonds, short-term debt investments, in accordance to your income needs and your comfort with market volatility.

Have a cushion

Your retirement income may need protection from bad markets and against common mis-steps that can be avoided with a little planning. One way is to create a buffer that will protect the income from periods of low interest rates and bad markets by building a cash cushion that is adequate to meet expenses in the immediate three to five years—that will prevent the need to draw down on investments when their values have fallen.

When markets are good, use the gains from rebalancing the portfolio to refill the cash bucket. The income required for the immediate future is protected from volatility by locking into products that combine safety and good returns such as government-sponsored fixed-income products.

Prepare for emergency

Emergency fund has as much relevance in retirement as it does in the earlier phases of life, though the type of emergency may be different in the latter years of your life.