September 28, 2023

FDI Forum

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What are the investment options for 50-plus retirees?

A reader writes, “There are many investment options for senior citizens. However, today many people retire or are forced to well before 60. Where can such people invest for regular income and cash preservation and wealth creation?”

Today even those above 60 are forced to look beyond traditional savings instruments to protect their money from the claws of inflation. How successful they depend on the amount of corpus available, the strategy used and their capital market experience. Those above 60 can refer to: How should senior citizens invest in 2022?

The same conditions apply to 50-plus retirees as well. Therefore we strongly recommend such investors verify the robustness of their available corpus either with a DIY tool such as freefincal robo advisory or with SEBI registered fee-only advisor from our curated list.

Robustness here means: how much risk can the retiree afford to take?  Can the corpus withstand stay 10 years of poor equity returns? This is known as the sequence of returns risk.

This will tell them if re-employment or freelance work is necessary to supplement their corpus or is optional. Only then can they consider investment options. The following is only a listing of such options and not recommendations. The weight that should be assigned to each option (including 0%) can only be decided after a detailed plan is in place.

Options for regular income

  1. RBI or GOI bonds via the RBI retail direct is a new world of safe, high-coupon rate products that retires of any age can consider. However, buy them only if you need regular income (once in six months) for sure. Once purchased, they cannot be sold mid-term. Here are some useful resources:
  2. Insurance annuity plans. In some circumstances, these annuity or pension plans can offer higher interest than RBI bonds. So it is better to compare the two before purchasing.
  3.  Post office small saving schemes. The good old post office (the only place you get unlimited soverigh guarantee on FDs and RDs) offers many products for non-senior citizens. The Post Office Monthly Income Scheme Account (MIS) is one such income option.
  4. Mutual Funds: Liquid funds, money market funds and arbitrage funds are conservative options for reasonably well-to-do retirees. Since regular withdrawal from these funds will gradually erode the capital, abundant caution is necessary. It is better to use them as a backup option for emergencies or one-time unexpected expenses. For recommendations see: Handpicked List of Mutual Funds Jul-Sep 2022 (PlumbLine)

Savings Options

  1.  Post office small saving schemes.  FDs (time deposits), RDs, NSCs, and KVPs can also be used to grow a portion of unused corpus without credit risk.
  2. Stable bank deposits. Stable here means too big to fail. Do not use any co-operative or small finance bank deposits or corporate deposits. Remember the thumb rule, the higher the interest rate, the higher the risk.
  3. Money market mutual funds. The capital is not protected but is reasonably safe.

Investment options

Only funds not required immediately should be deployed here! Not suitable for systematic withdrawals! These options are preferably only for those with considerable capital market experience before retirement.

  1.   Conservative options: A fund like Parag Parikh Conservative Hybrid Fund can be used for both returns as well as income. This will be much more volatile than a money market fund and should only be used by those with enough corpus to play with.
  2. Risky options: Balanced advantage funds or equity savings funds can also be considered by those with a high networth.
  3. Equity funds or direct equity: To be used with caution in moderate amounts only if the existing corpus can handle years of a bear market.

In summary, the investment universe and governing rules of retirement planning for 50-plus retirees are pretty much the same as senior citizens. If a robust plan is in place, product selection becomes natural and automatic.

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Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over nine years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation for promoting unbiased, commission-free investment advice.

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