Long-term goals like retirement need proper asset allocation between Debt and Equity. Allocation towards equity needs to be on the higher side at the beginning of the investment journey and as one nears the target date allocation towards debt needs to increase. An important challenge with debt investments in today’s time is falling interest rates and the need to put a stop loss on the fall.
The above line graph shows how the interest rates have fluctuated over the years.
All your plans of estimated income, post retirement, can go horribly wrong in a fluctuating interest rate scenario like this.
There are plans that take care of this uncertainty by giving Guaranteed 6% returns over 35 years. It is advisable to invest in such a way that one should receive 30% of the post retirement income from good Tax Free guaranteed returns that come over a 25-year period. The investment can be done over a period of 10 to 12 years after which one can start receiving the tax free income.
LIC had a plan that gave a taxable guaranteed pension of 12% which all clients who purchased at that time are still enjoying. Guaranteed plans will ensure that 30% of your Income is stable in spite of the fluctuating interest rates. The balance 70% of income can come from investments in Mutual Funds.
Lazarus Dias, MBA Finance, CIS, CPFA, RFC, CLC, MSLC www.freedomfactory.in
Comments