How to plan a secure retirement with fixed-income and low-risk funds?

Approaching retirement, especially when you’re responsible for your family’s well-being, comes with mixed feelings—excitement, and a bit of apprehension. If you’re like many people nearing retirement, you’re probably asking: How can I make sure our savings provide us with a stable, reliable income without risking it in volatile markets?

Here’s a clear guide to building a retirement plan that prioritises security, stable income, and peace of mind.

Why are fixed-income and low-risk funds essential at this stage?

At 58, with a family to support, you’ve likely invested in growth assets like equities over the years. Those investments have hopefully helped your wealth grow, but now it’s time to shift focus. The goal isn’t just growth—it’s consistency and dependability. This is where fixed-income and low-risk funds come in.

Think of fixed-income funds as the financial equivalent of a steady heartbeat. They don’t race ahead, but they keep everything running smoothly, even when markets get rocky.

Systematic withdrawal plan for predictable income

A Systematic Withdrawal Plan (SWP) can provide you with a regular income by allowing you to withdraw a set amount each month from your investment. Here’s why SWPs are particularly valuable for retirement:

• Steady Cash Flow: With an SWP, you decide the withdrawal amount and frequency, making your retirement income reliable and predictable. It’s like having a monthly paycheck, without relying on market performance. 
• Control and Flexibility: SWPs let you adjust your withdrawals based on your needs, and they don’t require you to sell large portions of your investment at once. This means your remaining funds can keep growing.

Crafting your retirement corpus with asset allocation

When building your retirement portfolio, it’s essential to balance between growth potential and safety. Let’s break down how this can look:

1. Equities for Long-Term Growth: You might already have an equity mutual fund or stocks from previous years. While equities can be volatile in the short term, they offer excellent growth over the long run, which can help your corpus grow faster.

   During good market periods, you can withdraw from your equity investments to take advantage of growth. In times of market dips, you can switch to withdrawing from safer assets, protecting your equity value until markets recover.

2. Debt or Fixed-Income Funds for Stability: This should be the backbone of your portfolio as you approach retirement. Debt funds provide stability and predictable returns, which are ideal for meeting day-to-day expenses without worrying about market swings. For example, if you need ₹40,000 a month, calculate a retirement corpus where 60-70% is in low-risk debt funds. This can fund SWP withdrawals even if your equity investments experience a rough patch. 
3. Rebalancing Regularly: Every year, review your portfolio and rebalance if necessary. For example, if equity values rise significantly, you may shift some gains into debt funds. This approach keeps your risk balanced while helping to protect your savings.

How much should you aim to save?

To calculate a retirement corpus that can generate a ₹40,000 monthly income, estimate how long you’ll need it to last and factor in a safe withdrawal rate. For example:

• Assume a 4% Withdrawal Rate: This is a common rule for safe withdrawals. To get ₹40,000 monthly ( ₹4.8 lakh annually), your goal corpus would be around ₹1.2 crore. This corpus can support withdrawals over many years, especially when balanced between growth and fixed-income funds.

How does SWP compare to dividends for retirement income?

Many retirees consider dividends from mutual funds or stocks, but these come with uncertainties. Dividends depend on the company’s profits and market conditions, which aren’t always reliable. With SWPs, however, you’re in control—there’s no dependence on fund performance or company payouts, just regular, scheduled income. This predictability makes it easier to budget your expenses.

Keeping your retirement income tax-efficient

Taxes matter, especially in retirement when every bit counts. With SWPs, your withdrawals are treated as partial redemptions, so you only pay tax on the capital gains, often at a favourable rate. In contrast, dividends are taxed at a flat rate, which can be less efficient.

Regular check-ups on your plan

Retirement planning doesn’t end at retirement! Each year, check in on your finances:

• Is your withdrawal rate sustainable?

If your needs change or inflation increases, consider adjusting your withdrawals or switching to a more conservative allocation.

• Are there major market changes?

Rebalance if necessary, and make sure your equity and debt portions stay within your target range.

Conclusion

Retirement should be about comfort and peace of mind. With a well-planned SWP and a balanced asset allocation, you can create a predictable income stream without taking on excessive risk. This strategy not only supports your financial needs but also gives you the freedom to enjoy retirement without the worry of unpredictable income.

Chakravarthy V., Cofounder and Executive Director, Prime Wealth Finserv Pvt Ltd.