A friend asked me this question: "I currently have an asset allocation of 60% equity and 40% fixed income. My retirement is many years away. Why can't I continue to hold 60% equity after retirement too? In fact, all my life?". Since the answer is not a simple "yes" or "no" and since it can illustrate certain aspects of reviewing the strength of a retirement corpus before or after retirement, let us discuss this with the aid of an example.
Here is a set of easy to use online retirement calculators created by Arunram, a certified financial risk management professional. Arun had pointed out a bug in my FU Money Calculator and shared this set of tools over email. We also met at the Delhi DIY meet last month. I requested him to share this on freefincal and he readily agreed. The DIY community thrives on such meaningful contributions from intelligent investors and professionals.
"How much should I invest/save for retirement?" is a pretty common question (try googling it). This question, like most other, is often asked with the expectation of a nice and comfortable answer. "Be sure to save 10-15% of what you make, for retirement" is an equally common answer. Unfortunately, nice and comforting as it may sound, such answers are often far from the truth.
Retirement planning is complicated because the corpus accumulated is not meant to be spent in one-shot like all other goals. The corpus must not only provide regular income to meet expenses, it must also grow at a rate that at least matches inflation and must be large enough to outlive the individual. This is a tough ask. Any retirement calculation is subject to several assumptions. If these assumptions are not realistic (for example planning with inflation of 6% and equity return of 15%) then results of the calculation would appear comforting even as reality prepares a bitter pill.
For a person who has been investing in equity (directly/indirectly) for several years, the question, "how much equity exposure should I have after retirement?" is not so hard to answer. However, that is not the case for most 50+ investors heading towards retirement. They would have little or no experience with equity or any market-related product. The retirement withdrawal rate or the initial retirement withdrawal rate, to be exact gives an approximate idea of the quantum of risk a retiree can take after retirement.
'Can I invest in such a way that my capital is protected?' is a question that many ask. Especially those who are retired, or about to retire. The answer is contextual. The term capital protection can take two meanings depending on how we use it. In this post, I discuss the disadvantages of capital protection, when one should do it and what are the alternatives.
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