Nearing retirement? How to protect your savings amid market volatility and rising inflation

With the swaying equity markets, dull precious metals, longer life span and escalating prices of goods; managing finances has never been as perplexing for those approaching retirement as the current war-stricken phase.

Inching closer to retirement means gradually shifting investments from an aggressive phase of higher equity exposure to a conservative yet wealth preserving phase and providing enough stability to the portfolio through heavy fixed-income investments.

But currently, it is risky trying to redeem equity investments as one might end up with an overall smaller retirement corpus, which needs to last at least for the next 25-30 years. However, these testing phases are when the basic financial planning matters.

Mint spoke to financial planners and investment managers to understand how those nearing retirement should navigate these tough times of political uncertainty and market meltdown phase.

Avoid panic

First advice they offer is not to make decisions in panic. The short-term volatility can force individuals to shun equities completely in a bid to protect the capital. But only fixed income investments would help in the long-term if inflation raises its ugly head.

“It is observed that when decisions are made during turbulent times, they tend to go wrong. There is a chance one takes a call on gold or oil investment in the morning and by the evening the prices turn another way. Planning to time investments is futile during such phases,” says Suresh Sadagopan, Founder & Managing Director, Ladder7 Wealth Planners.

When one burns fingers often due to panic reactions, the investment instrument is given up.

“Often the behavioural mistakes lead to blaming the product. However, the performance is affected due to lower allocation during dull equity phases and higher allocation during euphoria,” says Poonam Rungta, Certified Financial Planner at P Rungta Investments.

Do not give up on asset classes

Exiting equities due to volatility is the easiest during such times, but this behaviour could be harmful for your portfolio.

“A common behaviour is to completely get out of equity until volatility subsides and re-enter at an opportune time. But understand that reinvesting may not be possible at a later stage due to the run up. Some investors got a taste of this under silver investments and small caps,” says Rungta.

So, do not stop your SIPs due to market volatility as this anxiety could force you to accumulate units at a higher price always, warns Rungta.

Basics matter

Trying times like these test the foundation of your financial portfolio and the asset allocation is the underlying fabric that is critical. “In periods of market volatility, the key is not to exit markets and to build a well-diversified portfolio that balances safety, liquidity, and moderate growth,” says Saurabh Jain, Co-Founder & CEO, Stable Money.

So, if that is in order then the secured debt portion can offer solace for the near term needs.

“Sticking to asset allocation mix right helps one at all times, but more so during the phases of volatility as it reduces the anxiety linked to shorter-term market ups and downs as your immediate needs are already taken care of by parking in less volatile investment avenues,” says Rungta.

Then drawing funds for immediate needs can be done through the debt portion, even as the equity portion is slowly reduced.

“For asset classes that aren’t volatile – such as debt – one need not worry too much. Also, when one is tapering equity exposure, one would gradually move from 60% equity to 55-50% equity and not 20% equity,” Sadagopan says.

One can use the trigger facility under mutual funds such as sell select units when the equity fund returns scale a set percentage higher. These can also help purchase more during dips.

“Phasing down equity exposure over 12–24 months while retaining a modest allocation to diversified equity mutual funds helps preserve long-term growth potential and protects purchasing power against inflation,” says Jain.

Longer-horizon

Don’t expect quick results.

“Based on the geo-political conditions, one needs to have a long-term horizon for investments and need to plan adequately for contingency provision. The current worry for investors are the goals in the immediate term of 18 months. However, appropriate provision needs to be made for immediate needs of three years,” says Sadagopan.

As a result the inflation-beating long-term assets can continue to grow in the background through smaller investments at regular intervals.

“Investing through Systematic Investment Plans (SIPs) can also help retirees navigate volatility by spreading investments over time, reducing the impact of short-term price fluctuations while gradually building exposure to these assets,” says Jain.

These also help you inflation-proof your portfolio as sticking to fixed income instrument will give you negative return. “Another risk of inflation spike needs to be built into planning for contingency needs,” warns Sadagopan. Hence using equity investments and even step-up SIP, where we invest slightly higher with each SIP anniversary would help.

Saving to protect immediate needs

Parking the funds generated from other asset classes in fixed-income instruments for immediate consumption is ideal, as they offer stability and predictable income.

“Bank fixed deposits remain a popular choice, and several small finance banks currently offer interest rates of 8% or higher. Deposits of up to ₹5 lakh per depositor are also protected under the Deposit Insurance and Credit Guarantee Corporation (DICGC) framework, adding an additional layer of security,” says Jain.

Retiree-friendly investment products

Alongside FDs, retirees can also consider allocating to high-rated corporate bonds, which provide relatively stable returns and fixed, predictable income streams, making them another effective way to add visibility and stability to a retirement portfolio.

“Retiring investors look for steady returns with safety and bonds offer the desired solution. These are easily tradeable (high rating) and offer fixed rate returns. Bonds are generally secured and now have wide participation from retail investors, funds, insurance companies and corporates,” suggests Parag Sharma, MD & CEO, Shriram Finance, adding that finding secondary market bond investing opportunities (through stock exchanges) are increasingly possible in the current phase.

Cash flow

Don’t consider equity instruments for immediate needs. Instead consider other assets.

“One can look at drawing funds from pension products, Senior Citizen Savings Scheme, Government Small Savings investments instead of the equity corpus – which would be ideally 30% during the pre-retirement phase,” says Rungta.

Creating staggered maturities across FDs, bonds, and debt funds ensures regular cash flows while maintaining liquidity for unexpected expenses.

“Overnight funds; liquid money market funds have minimal sensitivity to interest rate swings and provide a safe harbor from the fluctuations affecting longer-term bonds. By focusing on these short-term instruments, investors can maintain high liquidity and stable risk adjusted returns,” says Amit Modani, Senior Fund Manager, Lead – Fixed Income, Shriram Asset Management Company.

Stay away from overbooking

However, one tends to go overboard during anxious phases and withdraw far more than needed.

“Also, beware of over estimating expenses and accumulating a higher amount in cash or equivalent assets as there is the risk of moving to a higher tax bracket due to selling assets, which may not be required immediately. There is also a tendency to spend the money, which lies idle,” says Sadagopan.

One way to avoid spending all could be to “use hybrid funds, liquid funds or short-term corporate debt to park the money,” says Sadagopan.

“Taxes or other complications also need to be mindfully planned for, while shifting from 80% equity to 30% equity,” says Rungta.

Also, split the funds between self and spouse to use the tax bracket exemption limits wisely.