Author Topic: Carefree Retirement  (Read 1336 times)


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Carefree Retirement
« on: January 29, 2016, 03:38:22 PM »

The Investment Formula for a
Carefree Retirement


 So you will turn 60 soon?

You will have a blast at your office farewell party.

You will say goodbye to your lunch buddies.

And finally settle down to make the bucket list of hobbies to pursue, books to read, movies to watch, and places to visit.

Well, there is something else that you should prioritize.

Call it - using the formula for carefree retirement

Retire carefree. Retire Rich.

Retire carefree. Retire Rich


No doubt, you have been waiting all these years to do what you really want. But that is only possible if you have enough money in the bank for you to stop worrying about the absence of pay checks.

Since inflation in India, is likely to stay at 6% or more, having fixed deposits cannot be your retirement plan. Earning less than inflation on your retirement corpus would mean getting poorer each year!

Even if you consider yourself a risk-averse investor, fixed deposits cannot be the ideal mode to safeguard your capital and earn inflation adjusted income at all times.

The real interest rate in India (benchmark interest rate adjusted for inflation) has averaged 6%for the past 35 years. And it is very unlikely that fixed deposits will yield better than this in the foreseeable future, irrespective of the movement in interest rates.

Abysmal income in Fixed Deposits
Abysmal income in Fixed Deposits
Source: YCharts

So how do you ensure a carefree retirement without the pay cheque? There is just one guiding principle: Invest wisely. You can't earn back your nest egg without a steady pay cheque. So you'd better make sure your investments are safe as well.

Unfortunately, when it comes to retirement, people don't think of stocks. They fear the risk of losing money in equities. But they don't realise that earning less than inflation can also deplete their retirement corpus.

Safe stocks can be the only answer to earning positive long-term, inflation-adjusted returns without taking disproportionate risks.

Plus, there is a formula to ensure that you do not expose yourself to the risk in equities more than what your age permits.

The Formula for Carefree Retirement = (100 - Your Age)*Safe Stocks

If you are, say, 50 years old, you should ideally have 50% (100 - 50) of your investment portfolio in safe stocks.

So as you age, you gradually reduce your exposure to stocks. But by following this formula, you are unlikely to be in a situation where there is not a single asset in your portfolio that offers inflation-beating returns.

And because the stocks are fundamentally safe and bought at safe valuations, you hedge your risk even more!

Here again, buying benchmark blue chip indices may not be the solution to your problem. Rather, you want to be sure that the blue chips you buy truly deserve to be in the benchmark indices for a long time to come. You also want to consider whether they have the business moat and management strength to protect your capital.

Being very selective and disciplined in buying the few stocks that make up the 20-40% of your post retirement portfolio can make all the difference.

The sooner you start using the formula for carefree retirement, the easier will it be to fulfil your 'golden age' dreams.