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How to structure your retirement investment portfolio


Ashok is a 68-year-old retired corporate executive. He supports his wife but has no other obligation or commitments. His pension from the voluntary pension fund that he had invested in is adequate to meet their routine expenses. However, he is not sure about his financial ability to meet any situation that may require a large ticket expense suddenly. A few months ago, his wife needed a surgery which required some money over and above the insurance cover. Ashok had to arrange for a loan at a high interest rate to meet this expense. He has investments in NSC, POMIS, Senior Citizen Savings Schemes, bank and corporate FDs. Some of these are maturing soon. However, Ashok plans to break some deposits and park the funds in his savings account so that he is not caught short again. Are his concerns valid and what can he do to address them?

Ashok, like all retired people, must have a portfolio that allows him to efficiently meet the two most important requirements at this stage in his life— regular income and liquidity. His income needs are adequately taken care of by his pension. But his ability to meet the need for emergency funds at short notice is compromised by the fact that his money is tied up in long-term investments which impose a penalty, if withdrawn before maturity.

Ashok will have to reallocate a portion of his portfolio into investments that have lower tenor. This will allow him to withdraw funds at short notice with no or low penalty. Since he is at a stage in life where he is not earning, it is important that the existing resources are invested in a way that gives him the flexibility to redeem and use them to meet his current or new needs. Instead of breaking deposits that will imply a penalty, Ashok should wait a while since some of them are due to mature soon anyway. In the meantime, he should review his portfolio and decide which are the investments that he can redeem earlier if the need arises and at the lowest cost. For example, bank deposits may be easier and faster to withdraw than a post office scheme.

Investments such as short-term debt funds, monthly income plans of mutual funds and bank FDs of lower tenors are products that Ashok should consider to reallocate a portion of his portfolio. They will take better care of the returns as well as the liquidity requirements of his investments than the savings bank account.

Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.


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