Retiring Soon? What’s your plan?

As a retiree, it's important to consider your investment options carefully in order to ensure that your savings will last throughout your retirement. One option to consider is investing in debt, such as bonds or other fixed-income securities. While investing in debt can offer some benefits, it is not necessarily the best choice for everyone, and it's important to weigh the potential pros and cons before making a decision.

"With an average life expectancy of 85 years, we must live 1/3 of our lives without any EARNINGS, i.e., the post-retirement phase, making retirement planning an essential part of everyone's life."

Mimi Partha Sarathy
Managing Director, Sinhasi Consultants Pvt. Ltd.

Keeping the prime focus as "Your savings will last throughout your retirement", let's take a look at both options - investing in debt and investing in equity.

Investing in Debt

One potential benefit of investing in debt as a retiree is that it can provide a reliable and guaranteed source of income. Fixed-income securities, such as bonds, typically offer a predictable stream of income in the form of interest payments. This can be particularly appealing to retirees who are looking for a way to generate regular income as a part of pension from their investments.

Another potential advantage of investing in debt is that it can offer a measure of safety and stability. Because bonds and other fixed-income securities are typically backed by a government or other institution, they offer safety and guarantee of capital and tend to be less volatile than equity and other types of investments. This means that, even if the overall market experiences a downturn, your investments in debt may not lose value as significantly. Further, if you hold the investment till maturity, you will get back your capital along with the regular interest income.

Drawbacks Of Investing In Debt:

There are some potential drawbacks to investing in debt as a retiree. One of the biggest challenges is that because bonds and other fixed-income securities are guaranteed in nature and generally less volatile than equity, they also tend to offer lower potential returns over the long term. This means that, even if you do see some income from your investments in debt, it may not be enough to keep pace with inflation and other factors that can erode the value of your savings over time.

Further, even though bonds and other fixed-income securities offer guaranteed interest payout, your entire capital would be at risk if it is a low rated & high yielding corporate bonds / fixed deposits. Read here in details about the potential risks while investing in debt.

Investing in Equity

As opposed to the concern of low return from debt investment, equity has the potential to generate superior return on your investments. Prima facie, investing in equity qualifies for our prime focus “Your savings will last throughout your retirement" as the equity would generate higher return.

However, it does not qualify for the guaranteed income flow and involves higher risk than debt instruments as well.

Then, what is the right asset class to invest during retirement, Debt or Equity?

Well! Why debt OR equity? It’s debt AND equity and a prudent allocation is the key. The asset allocation for you as a retiree will depend upon several factors, including your financial goals, your risk tolerance, your overall financial situation and most importantly the time horizon.

Ultimately, your plan should be comprehensive to address your regular income needs through long-term, high-rated, & high-yielding fixed income securities while at the same time a portion of your portfolio should be invested in equity for an inflation adjusted return to ensure the sustainability of your savings/retirement corpus throughout your life. It's important to assess with your financial advisor the risk and return aspects from different asset classes and carefully consider all these factors before making any investment decisions.