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How To Optimise Post-Retirement Regular Income

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How To Optimise Post-Retirement Regular Income
How To Optimise Post-Retirement Regular Income
Pratibha Boppana - 07 March 2022

RRelaxing on an armchair at your dream place, listening to favourite music and taking a sip of tea – in utmost comfort. This is how one pictures life post-retirement. But do you know how to get there? Real comfort comes with financial comfort. You have earned, saved, and invested enough all through your life. Now it is time to deploy that capital efficiently to enjoy the fruits of your wealth accumulation. Most senior citizens put their retirement corpus in fixed deposits, debt mutual funds, or senior citizens’ savings schemes. But there is a better way to manage your investments post-retirement, which not only beats inflation but ensures higher returns with a tinge of equity flavour – conservative hybrid funds.  

Beating Inflation

The most important aspect of investing for old age is yield on investment. It should beat inflation. For example, if the inflation in the economy is 6 per cent, then your retirement corpus should be deployed in a way that it earns more than 6 per cent while you are withdrawing regular income from the same on a monthly or a quarterly basis. It is easier to beat inflation at a young age when you can invest a large part of your portfolio in equities. But investing in direct stocks or equity mutual funds is not advisable after you turn 60. Senior citizens should rather invest in different kinds of debt mutual funds or consider investing in the lesser-known product category called conservative hybrid funds.  

What Is A Conservative Hybrid Fund?

Hybrid funds lie somewhere between equity and debt funds. There are various types of hybrid funds. Depending upon the type of hybrid fund chosen, their investment universe ranges across equities, debt, gold, real estate investment trusts (REITs), infrastructure investment trusts (InvITs), etc. Conservative hybrid funds invest 75-90 per cent of their total assets in debt instruments, and the rest 10-25 per cent in equity. This is why they are called conservative because a major part of the portfolio is invested in debt instruments, which have the potential to cushion any downfall in the portfolio. The equity exposure ensures that you earn more than what you would otherwise earn on fixed deposits, pure debt mutual funds or senior citizens’ savings schemes.

Some asset management companies put a lock-in of 5 years or till retirement age (whichever is earlier) when you invest in a conservative hybrid fund. This ensures that you don’t deviate from the investment goal.  

More Tax-Efficient  

Since the bulk of the portfolio is invested in debt instruments, these funds follow the tax structure of a debt fund. So, the capital gains (when you withdraw) are taxed depending on how long the investment was held by you. If units are withdrawn within three years, then it is termed as short-term capital gains (STCG). These gains/ profits are added to your income and are taxed according to the income tax slab you fall in. If the units were held for over three years, the gains are classified as long-term capital gains (LTCG) and taxed at 20 per cent along with indexation benefits.

Planning Withdrawals

Investment is just a single step in post-retirement life. You need to manage withdrawals too in an appropriate manner for regular income. Here comes the role of systemic withdrawal plans (SWPs). Since inflation will reduce the purchasing power of rupee, your withdrawals have to grow by some amount year-on-year. The challenge with common SWPs is the withdrawal amount remains constant over the years. You need a pay-out that keeps growing as years go by. So, a feature like Freedom SWP comes in handy. You have the flexibility to top-up your withdrawal amount by some percentage, which will help take care of rising inflation.  

As you step into the sunset years of your life, figure out how much monthly regular income you require post-retirement. Accordingly, accumulate a retirement corpus. Keep a portion of it in a conservative hybrid fund and opt for Freedom SWP.

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