Turning 50 is a significant landmark in an individual's life. It not only depicts that you will be near the peak of your career, but it also means you will have n number of responsibilities with a family to look after.
In this blog, we seek to discuss how you should plan your investments when you are 50 years old.
It is a wise decision to have investment plans in place irrespective of the stage of your life. For example, if you are turning 50 and if you haven't already thought of the investment plan, there is still some hope you can rectify the missed opportunity, but you need to act now.
You might wonder, what is the best investment plan for 50 year-old in India. Well, investing is an art that varies at every stage of your life.
Be it 20s, 30s or 50s, the investment plan will vary in each age bracket. This is because you have a different financial objective at each stage of life, a different set of responsibilities, various income slabs and most importantly, a different lifestyle and number of dependents.
Most importantly, you don't have more than ten years of service left, and retirement is very near. Thus, you need to plan for your retirement.
To start, first, compute the amount you would need post-retirement.
Very simple! Take into account the current and prospective expenses, your needs, and your existing investments. Assess the durability of the corpus you have. For this, you need to consider inflation as the costs are rising every day.
For example, if you are spending Rs. 10,000 per month currently, the same becomes Rs.12762 in 5 years and Rs 20789 in 15 years growing at a 5% inflation rate.
With time, you start wondering how to plan retirement at 50. Thoughts about how you can sustain yourself after retirement, starts doing rounds in your mind.
Once you retire, you don't have any steady cash inflow. Thus, you need to cover your expenses with the help of the pension you may receive or from the investments you make. Therefore, it is crucial that all your monthly costs are well covered.
You need to cover your needs such as monthly expenses, doctor bills, healthcare expenses, insurance premiums, leisure expenses, travel expenses and food expenses.
Assume you spend Rs. 50,000 per month including all of the above. You need to save a minimum of Rs.50,000 for 15 years after retirement.
This translates to Rs.90 lakhs without factoring in inflation. With inflation, the amount shall go up to Rs 1.5 crore (please note we have ignored the interest component you would receive on these savings after retirement).
To compute the monthly savings requirement, let us assume returns of 12-13% annually, given the risk appetite would be moderate owing to the age factor.
Also, given that your salary/income would see an increment every year, we have assumed a step-up SIP in which your monthly contribution increases by 10% yearly.
Considering all these, you need to start with Rs. 50,000 in the first year and subsequently increase by 10% every year.
Given you are investing for ten years, you may consider investing in equities. But with your 50, you should moderate your equity risk by investing in balanced or debt funds to some extent.
Large-cap funds invest in companies that are well established and have high market capitalization. These companies are financially healthy, reputable, and trustworthy; thus, the risk is moderated despite the equity asset class.
The fund seeks to offer investors long-term capital growth by actively managing the portfolio. The fund manager strives to maintain a diversified basket of large-cap equity stocks.
The fund aims to provide long-term capital growth by a portfolio with a target allocation of 100% equity comprising sectors as in the benchmark index, Nifty 50.
The scheme seeks to generate long-term capital appreciation to investors by investing in a portfolio that predominantly comprises of equity and equity-related securities of large-cap companies.
Hybrid funds are funds where the investment is made in both equity and debt. These are diversified funds that seek to provide a balance between risk and returns. Given the high age factor of 50, you should look to moderate your risk.
The fund seeks to provide capital appreciation with income by investing in a portfolio comprising equity & equity-related instruments along with debt and money market instruments.
The fund seeks to provide long-term capital appreciation and income by investing in equity and related securities as well as fixed income and money market securities.
While the equity portion is around 60-80 per cent with a minimum of 51 percent, the debt accounts for the remainder with a minimum of 20 percent.
The fund seeks to provide investors with long-term capital appreciation and liquidity by investing in a portfolio of debt and equity.
The fund seeks to invest in the equities of high growth companies and balances the risk with fixed income securities of high rating.
Now, let us move on to the real plan and its execution.
To retire, Invest; To invest; Save
The above proverb is pretty simple and explains your actionable item in just six words.
To have a secured retirement, you need to invest so that if inflation increases your expenses, your money also grows at a faster pace to curb the impact of rising costs.
To invest, you need to start saving.
It goes without saying that Indian parents who are mainly in the age bracket of the 50s currently have spent a fortune in the upbringing of their children and have seldom thought of themselves.
While you have your fixed deposits in the form of your children, you should always be financially prepared for yourself too. So if you feel you haven't saved anything yet, you need not worry.
Even now it is the right time to start. This approach shall help you boost your investment for your retirement.
While opting for investments, choose the instruments that offer a higher rate of return. Alternatively, you can look to increase your savings amount every month or every quarter.
Given you are already 50 with around a decade remaining for retirement, you need to focus on maximizing your savings and not returns.
Also, while at 50, keep the risk factor in mind and don't get aggressive with very high participation in equities. Remember, you can't afford too much risk if you are on the increasing side of the half-century.
Ideally, 35-50% is an excellent number to save when you are 50. The entire amount can be put in mutual funds by way of Systematic Investment Plans (SIP).
Also, mutual funds are a basket of stocks and other instruments. Thus, they offer good diversification of risk. You should explore mutual funds that provide a low-risk profile with average to above-average returns.
If you already have a portfolio of stocks, bonds, mutual funds or any other asset class, you should revisit it.
Ideally, an investor should keep track of his/her portfolio and should assess it every month or quarter, but significant rebalancing should take place every decade.
When your age increases, you tend to reduce your risk appetite and thus allocation to the different asset classes is the key to success here.
You should remember the rule that says the allocation to risky assets should reduce with increasing age. Thus, you should assess your portfolio and shuffle the debt and equity allocations to reduce the risk component of your portfolio.
50 is an age by which you should get rid of all your loans – be it home loans, personal loans, car loans or loans for children such as education loans, etc.
Thus, you should only focus on ending your previous commitments. Don't try to add any new EMI commitment at 50 as this could result in distortion in savings which is equally vital for securing retirement.
You should take a loan only if you have invested a sizeable sum in your children's education. But even in this case, the primary borrower should be the child, not you, so you are not liable for any repayment.
To conclude, we believe 50 is an important landmark in one's lifecycle, and it brings in a new set of responsibilities towards self and spouse particularly. However, if you have missed the opportunity to create wealth for retirement in the early years of your life, you need not worry.
All it takes is a disciplined approach and execution, and even now, you will be able to safeguard your future. You should keep your plan comprehensive and straightforward so that it covers your priorities first.
If you need any other information, you can always seek advice from experts from the house of Groww, and they shall be of help for growwing your money.
Until then, happy planning for retirement and yes, do not forget to plan a few of those amazing trips with your spouse!
Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.
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Research Analyst - Aakash Baid