Retirement on the way? Learn how to lower your investment risks with the right equity allocation

Your equity allocation should change with your projected needs in the future. It is best to reduce risky investments as you near your retirement period.

Create the right retirement portfolio

Nearing retirement and worried about how to build your retirement corpus? Simply put, people nearing retirement must pick debt over equity investments. This is because equity investments carry high potential risks. As you near retirement, you can no longer rely on the ever-changing metrics of the market.

Further, equity may not always yield 10%-12% annual returns. solid returns take time. Hence, it is advisable to reduce your equity-allocation as you near retirement, and invest more in debt-based options.


  • The average profit on equities is calculated over a span of many years. 

  • NIFTY50 samples show that the profit margins fluctuate drastically anywhere between +25 to +40 per cent and -8 to -15 per cent.

  • It is advisable to start de-risking 6-7 years before retirement.

  • The equity-to-debt ratio after de-risking can range between 20:80 to 35:65. 

Understanding sequence-of-return risks with examples

Let’s suppose you are retiring in 2 years and you have, for easier calculations, Rs. 100 available to invest. You put 70% of it into equity and the rest into debt. Due to market volatility, you incurred negative returns in both years. Since you no longer have a stable income to balance out your losses, you are left with a net loss and not enough money to reinvest even if the market bounces back.

Share prices will inevitably recover, but your funds might not. This is why it's important to plan investments properly before retirement.

Also Read: 6 steps to calculate your retirement corpus

How to de-risk your retirement corpus to mitigate sequence-of-return risks

Here are a few ways to reduce investment-related risks before retirement:

  • Start Early: Begin the de-risking and retirement planning process early. Starting at least 5-7 years before retirement gives you a head start to plan things correctly.

  • Lower Equity Allocations: Bring down your equity investment levels to 20% to 35% of your total investment funds. 

  • Be Tax Efficient: Transferring your allocated funds from equity to debt can be a tax-intensive process. Consult qualified professionals to transfer funds in a tax-efficient manner.

  • Treat Your Debt as Income: If your equity portfolio is going through a bad year, you can use your debt profits as stable pension income.

Also Read: Retirement planning: 55% of senior citizens regret not saving enough for retirement

The takeaway

To sum up, with only 32% of India's retirees currently invested in retirement-focused solutions, it's evident that many are ill-prepared for their post-work years. However, by taking proactive steps to de-risk your portfolio early on, you can strategically manage sequence-of-return risks, paving the way for a stable and secure future.

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