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Investing For The Twilight Years-Get The Basics Right
Absence of a good retirement benefit system in India means you have to plan your investments carefully for your twilight years especially in the face of inflation and rising life expectancy

Investing for retirement is a problem quite different from any other kind. For one, it is usually done decades before it is needed. Ideally, we should all start investing for retirement as soon as we start earning. To some extent, this happens automatically with benefit systems like the Employees’ Provident Fund (EPF) which is a compulsory deduction from salary.However, this alone may not be enough in the face of inflation and rising life expectancy. Hence discretionary savings (for example in mutual funds) should also be started as early as possible to have a larger retirement corpus. 

Retired life (after 60 years) is long butwe often do not understand the maths when we are young. According to the United Nations Population Division, average global lifeexpectancy has increased from 48 years in the 50s to 70 years now and expected to rise to 75 years by 2050.However, this figure is an average and may be slightly higher in urbanand semi-urban areas with reasonably good access to medical care.

Thus one must plan for a post-retirement life of at least two decadesif not more. It means that if your earning life is about 40 years, your non-earning life may be about 20-30 years. Since a huge chunk of your life is actually spent in retirement (without any regular income), it is important to save as much as possible in the 40 years of your earning life to spend during your retired life. How much should one save? Given the inflation rate, your expenses during retirement may be far higher than yourcorresponding expenses during your earning life.It is therefore important to roughly calculate your estimated retirement expenses post inflation to avoid any surprises later and plan your investments accordingly. The rule of 72 indicates that at 7% inflation rate, expenses would double every 10 years. Remember, a key cost would be medical expenses which needs to be planned in advance through health insurance, etc as it may be difficult to avail meaningful coverage at the later stage in life especially if you have existing illnesses. All this means that the burden of retirement savings weighs very heavily on us in our working years. However, it is not impossibleto plan for retirement, provided we start saving early and invest the savings wisely. Mutual funds, through their inherent advantages, provide various options to create this corpus.


While relatively lower returns may keep many non-risk averse retail investors away from debt funds, it is important to look at debt funds from an asset allocation perspective. By investing in two or more asset classes (also called diversification) including the less volatile fixed income, one ensures that any negative returns (if any) from more volatile asset classes are cushioned. Further, periodic rebalancing of asset classes helps investors to book regular profits in relatively outperformingasset classes and park the funds in relatively underperforming asset classes. There are a variety of mutual funds which provide automatic asset rebalancing through a single fund like balanced fund, monthly income plans and dynamic asset allocation funds.