Why retirees should consider laddering to plan their finances

Many people think that it is only for working or underage people. It is interesting to know that it is more relevant and all the more important for the retired class of investors.

Santosh Joseph, Founder and Managing Partner, Germinate Investor Solutions LLP said that when you retire and manage your finances well, you not only have a margin of safety, but you can also do many things with your extra money. can do.

“You can plan for things that you could never do while working. Or you can plan a vacation, for philanthropy or for social work, etc.,” Joseph said.

If you have saved a lot at the time of retirement, you can use the ladder model to manage your money. It means matching the maturity of the investment with the time-stipulated money requirement. Laddering is a concept to reduce volatility as you get closer to your funding requirement.

Suppose you have defined your money requirements after one year, three years, six years, etc. In that case, you will need to scale up your investments in line with your financial goals. The advantage of doing this is that you don’t have to worry about market volatility when you need your money.

To do this, you need to set aside money in debt funds for the initial years, hybrid for the middle years and equities for the post-retirement years.

For example, for a longer period like 10 years, you should allocate funds in equities. As you get closer to your timeline, gradually shift to dates or defined maturity instruments. Changes should be made periodically and not at the last minute—ideally, one to two years before the deadline for need of funds.

Nishith Baldevdas, Founder and SEBI-registered investment advisor, Shree Financial said that the most important task for retirees is to plan their cash flows. Retirees can make such a plan by following the ladder approach.

“Step 1: Set aside a corpus for medical emergencies. In this way, you can keep money in a savings bank account. Step 2: Let’s say you need a corpus for the first three years; you put that money in a savings bank account.” and sweep in fixed deposits or liquid mutual funds. Third step: Let’s say you need a corpus between three to six years; you can keep money in fixed deposits, debt mutual funds and senior citizen schemes. Step 4: Let’s say you need a corpus between six to 10 years; you can keep the money in a hybrid fund like Balanced Advantage Fund or Dynamic Asset Allocation Fund. Step Fifth: Let’s say you have a corpus after 10 years Funds are required; you can set aside such money in index or equity mutual funds,” Baldevdas said.