After retirement, a person’s main source of income ends, and the responsibility of expenses falls on their accumulated savings. The pressure of finances can increase due to medicines, household expenses, medical emergencies, and rising inflation. This is why it becomes crucial to avoid high-risk investments at this age and prioritize the security of capital.
Investment Strategy in Three Parts
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Financial experts believe that retired individuals should divide their money into three different parts instead of investing it all in one place. This provides access to cash when needed, ensures a regular income, and offers the opportunity for long-term capital growth.
Liquid Strategy
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The first strategy focuses entirely on safety. Enough money is kept aside to easily cover essential expenses for the next three to five years. This portion is crucial for household expenses, medicines, and emergencies. Options like liquid funds, overnight funds, or ultra-short duration funds are considered best in this category. They have a very low risk, and money can be withdrawn quickly when needed. This strategy helps maintain peace of mind during market downturns.
Income Focus Strategy
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The second strategy is for money that may be needed in the next five to ten years. The goal here is to receive a stable and regular income. Short-duration funds, corporate bond funds, banking and PSU debt funds, or hybrid funds like balanced advantage funds fall into this category. They have a limited equity component, which keeps the risk under control and provides relatively stable returns. This income can serve as a support system, like a pension during retirement.
Growth Strategy
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The third strategy is for long-term investments, aiming to beat inflation and increase capital. This can include large-cap funds, index funds, or flexi-cap funds. However, only invest money in this portion that is not needed immediately. Experts advise that after the age of 60, the proportion of equity investments should not exceed 20 to 30 percent, and this percentage should be gradually reduced as one gets older.
SIP
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Senior citizens should opt for Systematic Investment Plans (SIPs) instead of lump-sum investments to mitigate the impact of market fluctuations. Understanding tax regulations is also crucial, as senior citizens receive additional exemptions in many cases. Consulting an experienced financial advisor can further reduce investment risks.