What is the bucket wallet strategy for the elderly?
At a time when although there has been an indication of a possible rise in interest rates, FD rates are still low and to stay at the same time, the interest rates of small savings plans have increased. too abruptly lowered sharply but mainly for political reasons have been restored only to be revised lower in a not so distant period. So, in the midst of all these interest rate movements, the elderly in the midst of a peak of uncertainty due to Covid 19 times are unable to manage their finances as well as their retirement and for them the experts in personal finance suggested this sub-fund portfolio strategy.
Here is a summary of the strategy for seniors
This strategy divides your assets based on when you will withdraw them or when you would use them. The first bucket can be for assets that you plan to use very soon, say maybe over the next couple of years. This money should be kept in bank accounts, ultra-short bond funds, term bank deposits, savings accounts, short term income funds.
For other concerns such as regular income, the money should go into Pradhan Mantri Vaya Vandana Yojana (PMVVY), Post Office MIS Scheme, etc.
Then in the next sub-fund you can invest in retirement assets that you will use in 2-10 years and here the asset mix should be such that it does not exhibit huge volatility. The investment can be in a balanced fund, a long-term bond fund and a multi-asset fund. Long-term debt mutual funds also help outperform inflation, as you can expect a 7% return. If we disregard the 20 percent LTCG with the indexing benefit available in debt mutual funds, the net return on the after-tax income payment would drop by about 6 percent.
The investments that should be grouped here include stocks that can provide you with good growth in your invested capital. As the first bucket runs out, you will replenish it from the second bucket, which in turn should be completed by transferring money from the third bucket.
Simply to say here whenever you are able to make good profit on stocks, then transfer part of the funds from compartment 3 to 1. Thus, the surplus situation should always be maintained for compartment 1. In this way, compartment 1 will always be in surplus. Since these are all “grow” options, bins 1 and 2 may NEVER go down to zero.
This approach allows seniors to obtain a return on their investment capable of beating inflation, which has once again exceeded 5%.
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Article first published: Thursday, April 22, 2021, 6:17 AM [IST]