With increasing life expectancy and inflation, retirement planning has become a critical part of financial planning. Rising life expectancy raises longevity risk, which means a retired person may outlive his investments and the corpus may not be enough to sustain the desired lifestyle, post-retirement.
Inflation proof investment is the need of the hour as rising prices will erode the value of money. And retirement planning can be a tedious and continuous process keeping in mind appropriate asset allocation.
Here is how one can build a corpus chalking out cash flows and income by balancing portfolios. Portfolios need to be built on current risk tolerance level. Since less than 10% Indians have social security, retirement planning is important to maintain current living standards.
Investing in products that one understands is more important. It is also important not to overemphasize one particular category of asset. Any investment plan should have two components. One that earns minimum basic income and another that gains from select equity exposure. De-risking into debt instruments is done after retirement.
Higher returns are always coupled with risks; hence balancing invests appropriately to mitigate risks. Systematic withdrawal plans (SWP) can help maintain cash flow into your account. Possibility of one-off income like inheritance can be factored as well.
Funding retirement with rental income can be a good option as well, and one has to keep in mind the need for upkeep expenses and factor in the possible vacant period. It is always advisable to have an expert manage your portfolio for you, in order to have a realistics plan for your retirement and also pass on the legacy to beneficiaries.
Source : Financial Express