What are the investment options for retirees to generate regular income in 2020?
- Sankaran Narayanan
You need to plan as this is going to be a very difficult phase for all retirees -people who will be depending on their investments to generate regular income. This is because life was easy before - one could invest their money towards fixed income in deposits, bonds, Senior Citizens Savings Scheme or PPF - and earned returns that were good enough for one to actually beat inflation. I visualise that in the future, the returns will come down or one could say that they're beginning to come down and may even lower further.
During retirement, your risk tolerance is low. One can't take huge risks with one's investments. Maybe your investment generally goes up. But if it goes up and down more often, it can scare retirees who have stopped earning money and only have their accumulation to bank upon. So, retirees need to deal with their income-generation goal carefully. The only way for such investors is to work on asset allocation. You must understand that you can't do without equity.
Let's assume you have Rs 1 crore and somehow you are able to generate 8 per cent per annum. That would be around Rs 66,000 a month. Although it seems good enough right now, the problem will be after five years. This is because five years from now, your need for income will be more, assuming 10 per cent inflation in five years time on your household expenses. So, the same investment won't be able to support such an income requirement.
Thus, the need for your capital to grow in value is just as important as generating income. Most of the fixed income alternatives, which investors are used to, protect the capital, largely keeping it constant. So, you need an investment method that will grow your capital and support higher income requirements. So, work on asset allocation - maybe 30 or 40 per cent in equity and rest in debt, depending on the scale of your income requirement. Retirees need to take on some exposure to equity. Otherwise, their principal will lose value and won't support higher income needs.