Q. I am 56 year old and due for retirement in 2025. My assets include: PPF (Rs 35 lakh); PF (Rs 60 lakh); savings of Rs 16 lakh; Gratuity (Rs 8 lakh); shares (Rs 5 lakh); Mutual funds (Rs 45 lakh); Second home (Rs 40 lakh); Third home (Rs 16 lakh). I live in my own house worth Rs 95 lakh. I will need a monthly expense of around Rs 40,000 per month after retirement. I will need to keep aside Rs 20 lakh for children’s marriage and Rs 15 lakh for education. Please advise on how to utilise these assets effectively.
Response: My advice always is to have two components in one’s post retirement portfolio – a fixed income portfolio to meet short-term financial goals and generate a regular stream of income for meeting post-retirement expenses and the other component, primarily invested in equities, to ensure long term growth. The 2nd part should be able to deal with inflation and reduce the risk of outliving your retirement corpus.
At your age and given your financial goals and existing investments, I would suggest you to distribute your post-retirement investments equally across equities and fixed income instruments with around 10% of the overall portfolio being allocated to gold related instruments.
To ensure regular income stream for your post-retirement expenses, invest your savings account balances and PF and gratuity proceeds, currently amounting to Rs 84 lakh in total, in high yield bank FDs (with monthly payout option), Senior Citizen Savings Scheme (SCSS) and Central Government bonds (G-Sec Bonds).
Many small finance banks today offer FD yields of 9% to their senior citizen depositors while SCSS is offering an interest rate of 8.2% p.a. with a cap of Rs 30 lakh on the investment amount per depositor. Note that retired individuals aged between 55 years and 60 years can invest in SCSS if they make the investment within 1 month of receiving their retirement benefits
In case of G-Sec Bonds, you should prefer the ones having residual maturities of 24 years or above and offering yields of 7.3% or more at the time of investment. Remain invested in the G-Sec bonds till their maturity to eliminate the interest rate risk. Assuming an annualised return of 8% from your overall fixed income portfolio, it should be able to generate a pre-tax average monthly interest income of about Rs 56,000.
Invest in Sovereign Gold Bonds through the secondary market for your exposure to gold. Also continue with your PPF account due to its tax-free interest income and invest up to Rs 1.5 lakh in PPF each financial year to claim tax deduction under Section 80C.
Coming to your second and third property, I am assuming that you are not earning any rental income from them. Moreover, the rental yield in India usually ranges around 2-3%. If this is the case with your properties too, then I would suggest you sell them, after factoring in the market rates and capital gains tax implications. Invest the sale proceeds in equity mutual funds. You can also sell your investments in shares, except the high conviction ones, and invest the proceeds in equity mutual funds.
For your equity fund portfolio, you can spread your investments equally across flexicap funds, large cap funds and multi-asset funds. You can consider the direct plans of Parag Parikh Flexi Cap Fund and/or Quant Flexi Fund for the flexicap category; ICICI Prudential Bluechip Fund and HDFC Top 100 Fund for the large cap category; and Quant Multi Asset Fund or ICICI Prudential Multi Asset Fund for the multi-asset category.
Make partial redemptions from your equity fund portfolio and invest the proceeds in your fixed income portfolio if the latter fails to generate adequate post-retirement cash inflows. Also start steady redemptions from your equity portfolio once you are left with 3-4 years for your children’s higher education and marriage.
An edited version of this article is published in The Economic Times on June 17, 2024.