Investing in your 50s: Practical Tips

As we age, we are said to gain experience and wisdom. Aging also changes our perspective towards life as our life goals change. When we become financially independent, we plan our finances to provide for important milestones of our life. But when we hit the golden period (50s) our investment goals change. Retirement planning is more emphasized in this phase.

When it comes to building a substantial corpus for our retirements, we make various investment choices. But are the choices correct? Are we approaching investments in a practical way?

Investing is always a tricky ball-game and if you flounder, you compromise on the yield. So, here are some investment tips for investing in your 50s so that you achieve the maximum possible returns on your investments.

• Ascertain an optimal retirement corpus before investing

Retirement is no longer a distant goal. You would need a retirement corpus after 8-10 years. Have you thought about the amount of corpus which would be sufficient to meet your lifestyle expenses? No?
Its time you do it. After all, what good would come out of your investments if they are not done with a clear absolute goal?

• Cut down on risky investments

When you are building a retirement corpus, the investment risks, ideally, should be low or minimal. Since you are already in your 50s, you have limited years on your hand to work and earn. Since your earning capacity is limited, your investment horizon is limited too. As such, you cannot afford to take high risks. So, if you are investing in risky investments, it is time to go slow on such investment. So more debt, less equity or real estate.

• Secure an annuity

Annuity is a series of regular payments which is paid every month, quarter, six months or year as chosen by you. If you choose to receive a monthly annuity after you retire, you can ensure a steady source of income even post retirement when your actual income stops.

• Choose an investment with a tenure matching your retirement age

While a long term investment is always advised upon, your investment tenure should match your retirement age. When you retire your income stops. In such a situation you need funds for meeting your expenses. So, choose an investment which matures when you retire and contribution does not continue even after retirement.

Investing when done with these tips in mind help you match your investment objectives. If you are wondering which investments would help, here is an indicative list of investment solutions for your 50s:

• Pension Plan – a pension plan offered by life insurance companies is an option to secure an annuity. These plans provide you a regular stream of annuity payments for as long as you live.

However, the pension plans category has yielded very low returns barely matching up to inflation rates.

• Monthly Income Plan (MIP)

An MIP is a debt mutual fund scheme which invests a small part of the funds (15-25 per cent) in equities. It offers regular income in the form of periodic (monthly, quarterly, half-yearly) dividend payouts. Due to the presence of equity, MIP returns can be higher than regular debt funds.
An MIP is the ideal balance for those seeking regular income or for a conservative investment avenue.

• Systematic Withdrawal Plans of Mutual Fund schemes – through the Systematic Withdrawal facility too, you can get a regular stream of income from your mutual fund investments. This income stream can help you in meeting your retirement expenses post retirement. SWPs should, however, be availed closer to the retirement age.

An SWP will fund your retirement well if invested in the right mutual fund.

• Debt mutual funds – to cut down on risk exposure you should choose debt mutual funds. The returns are higher than other low-risk investment avenues (FDs, PPFs, NSC, etc.), you get tax benefits if the fund is held for three years and risks are minimal.

Retirement can prove to be a golden phase of your life if you plan for it properly. The years before retirement play a crucial part in ensuring that you have a comfortable life post retirement. In these deciding years it is imperative that you invest properly and in a prudent manner. So, follow these tips when you invest after attaining 50 years of age and meet your life’s last goal – retirement planning, efficiently.