How can I protect my retirement savings from a market crash?
I am planning to retire in a few years and most of my savings are in equity mutual funds and stocks.
I am worried about what will happen if the market crashes just before or after I retire.
How should I manage my investments so that my monthly expenses are not affected
If you are close to retirement, the biggest risk is a market fall just when you start withdrawing money.
So, don’t keep all your savings in equity when you are only a few years away from the retirement date.
- Start reducing equity exposure at least 2 years before retirement.
- Slowly move some money into safer options like debt funds or fixed deposits.
This helps protect your overall corpus from sudden shocks.
A practical way to manage this is by using a bucket strategy. Suppose your monthly expense is Rs. 1 lakh.
- First, set aside 1-Year worth of your expenses (12 Lakhs) in a bank FD. This is your emergency fund. You can use it for use cases like a medical emergency or an emergency travel. You must always keep replenishing this fund. Under normal times, this money stays idle in your bank.
- Keep the first 3 years of your expenses (36 Lakhs) in a safe investment (a liquid mutual fund). This way, your monthly needs are covered (for the next 3 years) even if markets fall. You will not need to touch the invested money during a bear market (or recession).
- For the next few 3 years’ worth of your expenses (say 40 Lakhs), you can keep the money in a hybrid fund.
- The Balance money you can keep in pure equity for long-term growth.
These steps will help not to sell equities in a bad market.
Review your portfolio regularly. Rebalance once a year or when allocation changes too much. If you want to know about rebalancing, read this article.
