Nearing retirement & facing income disruption? Stay committed to investment

Retirement can be a daunting stage for many people – lack of adequate preparation for living these golden years without a regular paycheque or with toned-down income levels can make retirement life a stress-filled one. 
Mutual funds can offer the flexibility to continue investing through the SIP route
Mutual funds can offer the flexibility to continue investing through the SIP route
Updated on Apr 29, 2022 07:38 PM IST
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ByHT Brand Studio

“Until COVID had struck the world in 2020, my business was prospering. I was 56 then and had already strategized as to how I would eventually stop playing an active role in the day-to-day running of the business, delegate responsibilities to others and then retire. I had been saving and investing in a disciplined fashion for more than two decades for retirement and I was pretty confident that I would comfortably cross the retirement milestone by 60,” says Ajay Singh, a businessman based in Bhubaneshwar, India.

However, Singh’s dreams of an easy transition from the nine-to-five grind to the pastures of retirement life hit a roadblock when the pandemic struck and a nationwide lockdown was imposed. Revenues dwindled drastically with his business operations coming to a screeching halt and Singh found himself having to cut corners on all fronts to keep the show running.

Two years down the line, Singh feels fortunate that his business has recovered from the pandemic blows and he wasn’t pushed to the edge of having to shut down his business completely in the course of the COVID outbreak. His retirement goals however have moved farther on the horizon but Singh is confident that he can make up for the losses and get back on track without much hassle.

Retirement can be a daunting stage for many people – lack of adequate preparation for living these golden years without a regular paycheque or with toned-down income levels can make retirement life a stress-filled one. Singh’s case is an example of how sudden emergencies that cause income disruptions can dent your retirement goals even if you are in a financially stable position. However, it is not impossible to salvage your progress and restart your retirement investment journey if you adopt smart financial strategies.

Singh narrates that one of the biggest takeaways from his experience was to follow a budget with military precision. “I have always been conscious with my money and have followed a budget diligently for the most part of my life. Prior to the episode of my business hitting the doldrums, I used to allow myself occasional slip-ups and indulgences. However, after incurring losses, I ensured that I did not spend even a single penny on any unnecessary expense. It was hard but to keep myself motivated, I would compare my monthly spending with that of the figures during the post pandemic period,” he states.

A strict budgeting routine also prevented Singh from defaulting on his loans. "I was paying off a home loan and when the pandemic hit, my biggest concern was defaulting on the EMI payments. I knew that prolonging the loan payments would make it harder for me to recover financially and it would have detrimental impacts on my other financial goals. In fact, I tapered down the amount of money I was investing for my financial goals and pumped more money into paying EMIs,” he reminisces.

Singh also opined that his mutual fund investments ensured that his financial goals, especially retirement did not get derailed completely in the face of adversity. “Mutual funds afforded me the flexibility to continue investing through the SIP route even though I had little money to spare at that point of time. I continued investing in my prior equity investments because the markets were pretty wounded then when India was in the throes of the first wave – it was a great chance to add large cap stocks to my portfolio that were previously too expensive. Besides this, I put money in short-term debt funds for security and to get more maneuvering room for myself in the short-term till the situation improved,” he explains.

As the scenario improved and business operations started limping back to normalcy, Singh rejigged his portfolio and shifted to equity-heavy hybrid funds for his retirement goals. “I knew that my retirement had to be postponed for a few years. In order to make sure that it did not get further delayed, I invested in equity-oriented hybrid funds because the returns would help me tide through the losses in the medium term and they would also be less risky than pure equities at a time when the world knew uncertainty was here to stay,” he says.

Shalab Gupta Bibhab, founder of Bibhab Capital says, “With every passing year, most working professionals worry about living too long. Not only does it have mountainous health expense implications but lifestyle continuity concerns too. In this case, if your retirement is a few years away and you have not invested in any instrument which is compounding at a better rate than inflation and at the same time is liquid then immediately start mutual fund SIPs depending on your risk appetite. The amount should be commensurate with your needs at retirement. In case you are already invested in equities and retiring in the immediate future then you need to slowly start limiting your risk exposure and gradually shift to hybrid MF category to limit downside in case of any eventuality. Post-retirement one can start SWP from this corpus to cater to regular income needs.”

Key Takeaways

- Ensure that your health insurance coverage is adequate if you are going through a period of turmoil caused by income disruption. A sudden medical emergency can push you deeper into the abyss of financial distress.

- Avoid impulsive investment decisions in such circumstances. Fall in incomes can be a stressful experience but knee-jerk reactions can do more harm to your overall financial health in the medium to long term.

- Mutual funds can afford the flexibility to continue investing through the SIP route even though you might have little money to spare at that point of time.

- If your retirement is a few years away and you have not invested in any instrument which is compounding at a better rate than inflation and at the same time is liquid then immediately start mutual fund SIPs depending on your risk appetite.

This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.

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Sunday, July 03, 2022