You would have thought that after retirement, you’d easily get an interest income of 8 per cent or 9 per cent per annum on your fixed deposit (FD) investment, and that would be enough to meet your regular expenses. After a series of rate cuts, the interest rate on the bank FDs has come down close to the 7 per cent level. Should you worry after the fall in interest rate? The answer is no! Instead of worrying, you should focus on realigning your portfolio so that you can meet your retirement goals on time.
As Interest Rates Dip, It's Time To Realign Your Retirement Portfolio
For retirees, any change in the bank interest rate can significantly impact their retirement portfolio. Retirees typically rely on interest income to invest their retirement corpus. Therefore, a dip in the interest rate requires a realignment in their retirement portfolio
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How To Realign Your Portfolio?
Here are some important things you can do to realign your retirement portfolio.
Assess The Total Return Offered By Different Asset Classes In Your Portfolio
A fall in interest rate may not impact your portfolio return immediately. However, you should be ready with a plan to replace the FDs with other instruments that can offer you the required rate of return to achieve your retirement goals. For example, if any of your FDs is maturing soon, then you can use its maturity proceeds to invest in a debt fund or small savings scheme, etc. Choose an appropriate instrument in sync with your retirement goal.
Reassess Your Spending Plan
If you want to stay invested in FDs despite a fall in the interest rate, in that case you need to compensate for the deficit in return for achieving your retirement goals by adjusting your spending plan. Try to reduce your expenses so that you can save more money to invest it towards your retirement goals.
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What Are The Other Investment Options Available In The Market Amid An Interest Rate Cut?
After a reduction in the FD rates, you can explore other investment avenues such as debt mutual funds, small savings schemes such as the senior citizen savings scheme (SCSS), high-rated corporate bonds and FDs, etc. Choose FD alternatives based on your return requirement, risk appetite and liquidity needs.
The interest rate may not remain at a low level for a very long time, and it may start going up again in the future. So, if you plan to renew your investment in FDs, then you can choose the FD laddering option to quickly benefit from an upward revision in interest rate in the future.
The author is an independent financial journalist
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