Enough isn’t enough

May 16 2014, 05:21 IST
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SummaryCareful planning is required to ensure that your retirement corpus doesn’t fall short of future needs

Risks from volatile markets and fluctuating interest rates are the two biggest dampeners for retirement corpus. Also, 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.

So, the foremost challenge is to make inflation-proof investments as rising prices will erode the value of money. And, to make the best of your investment and, yet, stay risk-averse, retirement planning must be a continuous process with an appropriate asset allocation strategy comprising equities, debt, gold and, even, real estate.

After the accumulation period is over during one's working life, chalking out the annuity income and regular cash flows is the next milestone. During the accumulation period, regular review and re-balancing of portfolios is required to meet the requirements of a retired life. With some deft planning, it will not be a daunting task to plan and rejig investments that earn steady income and counter inflation.

A report by global consultancy firm EY estimates that for a person earning R10 lakh per annum at the age of 30 and retiring at the age of 65 years, the retirement corpus would cover expenses after retirement for eight years only, whereas he can be expected to live much longer (around 16 years or more) as per the current life expectancy rates. So, the the annuity income would barely cover half the expenses after retirement.

Analysts say one's post-retirement portfolio should be built on the basis of the current risk-tolerance level. Since only 10% of India's working population has any form of social security, early retirement planning is important to maintain the current living standards. One must look at the risk profile and invest required amounts in products that help generate returns. Most importantly, one should invest in products that one understands. Re-balancing portfolios ensures that the investments do not over-emphasise on any particular asset category. Selling investments from over-weighted categories and using the money to invest afresh in under-weighted categories will help reap profit and escape longevity risk.

Data from the Census show that more than 60% of the country's population is in the age group of 15–59 years. While, on one hand, this is a demographic dividend of which the country is proud of, on the other, the percentage of its population that is above 60 years is increasing every year due to improved longevity, driven

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