On the threshold of retirement?

On the threshold of retirement?
It's nice to get out of the rat race, but you have to learn to get along with less cheese.

People normally get apprehensive when retirement is less than a decade away. Yet, financially, it could well be one of the best stages in their life.

Let's take a generic profile. Professionally, someone at this stage would be at the peak of his/her career. Children would have completed their education by now and would even be financially independent. Since the number of dependents would have decreased, so would expenses (in proportion to income). So, ironically, the ability to save during these last few years may be higher than it was sometime back.

However, it is wise for those in this stage to shift a major part of their portfolio towards debt. We believe that the debt component should account for at least half of the portfolio. In financial jargon, what is needed is capital guarantee coupled with participation in the upside potential.

Action Plan
Invest your wealth in a post office monthly income scheme. Alternatively, you can even try long-dated bank fixed deposits which give you a periodic return that directly gets credited to your bank account. Since you do not need a monthly income as of now because you are still working, channelise the interest earned into large-cap, stable diversified equity funds or balanced funds.

Create a systematic investment plan so that the interest you earn is being regularly invested in these mutual funds. So on one hand your money is safe and assured and you are still able to participate in the stock market with the incremental income. This will provide a boost to the overall returns without compromising on the safety of the wealth accumulated.

Do not get aggressive with mid-caps or sector funds. The equity portion of your portfolio should be concentrated on hybrids and large-cap funds. You can even consider index funds that track the Sensex or the Nifty. They are low-cost, invest only in the biggest Indian companies and deliver returns in line with the stock market.

Among the hybrids, you can consider adding Templeton India Pension Plan. This fund invests about 60 per cent of its assets in debt and focuses on the large-cap stocks for equity allocation --- an ideal combination for your profile. On top of it, it boasts of an excellent long-term performance record.

You would also have a Public Provident Fund account by now. Keep investing the maximum annual limit of Rs 70,000 in it. On maturity, you would end up with a tidy amount. If retirement is around seven years away, then you can even consider the National Savings Certificate because it will mature just before you retire.

Take a new look at your insurance cover. With the number of your dependents decreasing along with your expenses, your insurance needs too would have declined. Moreover, your investment portfolio would be of a sizeable value to take care of your living expenses. Chances are high that your insurance policies would start expiring in the near future. Most probably, there is no need to think much about it.

Lesson to be learnt
It's time to overhaul your investment portfolio. The priority must shift from wealth maximisation to protection of wealth accumulated since it is the latter that is going to fund your retirement which is no longer a distant reality.