In the world of savings and investments, assurances are rare. They come at a steep price when they do come at all. Such price is usually too steep to be afforded by ordinary investors. And, as always, there is no free lunch for anyone.

Try telling this to the superannuated and those who are about to join their ranks. You will be countered with plenty of powerful arguments in favour of assured and guaranteed earnings.

Retirement, which spells the end of active income, must be sustained by sundry assurances, it will beargued. And not without reason — after all, regular monthly expenses must be met, for which guaranteed income is necessary. The best way to go about it is to secure promised returns of some kind, at least to a limited extent.

The average retiree, however, must invest a considerable part of his corpus in market-linked assets, where performance is determined by many critical factors.

Mere assured-returns options are not enough these days, it is generally understood. These can barely cover inflation and taxes.

So where will the ordinary retiree invest his wealth? How much will such an individual allocate to market-determined assets? And how much will he reserve for bank and postal deposits, bonds or various fixed-return securities? This, I believe, is truly a crucial ask in this day and age.

This Monday, we will attempt to find some answers. But before we commence, let me rejig your memory with a fair bit of realism.

One, no bank or lending institution will ever fund your retirement. You are completely on your own.

Two, if you have failed to builda decent-sized corpus while youwere working, you will need to depend on others for sustenance in your old age.

Three, the corpus you may have built must grow adequately; in fact, its growth and appreciation must outdo the effect of withdrawals.

Given nothing, guaranteed nothing

Imagine the golden phase of life sans financial guarantees of any kind. You have promises and indications, yes; but these are absolutely limited. The relentless rise in prices remains a basic challenge for all. You are, to paint a grim word-picture, “given nothing and guaranteed nothing” by the system.

So the 8-9 per cent your deposit may be earning is not enough to tackle the advancing food and energy prices. Of course there is income tax too, but let us keep this unsavoury but important subject away from the ambit of our immediate discussion. So, for a retiree (especially one without an index-linked pension), life evolves generally around his 8-9 per cent. Unless he is seeking market-linked options, double-digit returns will elude him. That is quite unfortunate, right?

The silver lining for him can come in the shape of active portfolios (stocks or equity funds). I am assuming — perhaps a tad incorrectly — that the average retiree will tend to avoid debt funds and the like. Their returns are limited in the current circumstances.

A standard 12-15 per cent is what every individual deserves even after retirement. A serious and committed individual will target such a figure so as to cover his expenses and retain a decent margin.

What steps?

As to the actual measures that may be adopted, a lot would depend on the nature of the individual concerned. By “nature” I refer to the ability of taking risks. Let me explain with the help of an elementary playbook. I assume that a retiree may fit any one of these three descriptions — risk-averse or conservative, risk-seeker or aggressive, and risk-neutral or moderate.

The retiree’s asset allocation should depend entirely on this aspect. A moderate stance may trigger the adoption of a 50:50 strategy. This basically means half his corpus should be in debt, while the other half should be devoted to equity. A clear and simple split down the middle may be recommended. The conservative is, however, way off the vertical fault line. He should go long on debt, which means his portfolio should be somewhat muted and controlled. Not for him the natural exuberance (read: extreme risk) offered by equity.

The aggressive style is, once again, vastly different. He goes deep inside the equity spectrum and picks his stocks. While he does not shun other asset classes, he is aware that fixed-income securities would not serve him well.

A ballpark estimate or two may be helpful. An 80:20 division may be prescribed for the individual who wants mostly equity. This, in essence, translates to 20 per cent allocation to debt. The remaining 80 per cent is earmarked for stocks.

Now, a simple 80:20 division may not be accepted by all. While other prescriptions are welcome, I find great logic and sense in the standard formula-driven approach. As always, it is up to the individual to accept it. Like everyone else, he is caught amidst life’s great binary, risk and reward. The risk is his alone, and so is the reward that waits at the end of the road.

Property poser

I am a senior citizen. Over the years, I have inherited 3 residential properties. I sold one property in June 2022. Another one (inherited jointly with two others) was sold in August 2023 and one in September 2023. I have purchased two residential flats in November 2022. In AY 2023-24, under section 54EC, I got 100 per cent tax exemption due to LTCG arising from property sold in June 2022. Investment in 54EC bonds was almost up to the maximum limit. For AY 2024-25, since I purchased two residential flats in November 2022, shall I be eligible to claim exemption due to LTCG arising from the sale of two residential properties in August and September? If the total LTCG amount from the sale of the two properties exceeds the maximum limit stipulated for section 54, can I claim exemption under 54EC for the extra amount?

Rukmini, email

In order to avail the benefit of capital gains exemption under section 54, the seller should purchase a residential house either 1 year before the date of sale/transfer or 2 years after the date of sale/transfer of the property. You sold in August and September 2023 but purchased in November 2022. So you would be eligible to claim capital gains exemption under section 54. Budget 2023 introduced a cap of Rs 10 crore on capital gains for claiming exemption under section 54. In order to avail benefit under section 54EC, which involves investment in specified bonds to save capital gains tax, the investment should be made within six months from the date of transfer. Moreover, section 54EC has a limit of Rs 50 lakh during any financial year. Also, in the explanation to section 54EC subsection 2, the term ‘whole or any part of capital gains in long term specified assets’ makes it clear that the exemption under 54EC is available even when part of the capital gain is invested in long term assets. You may refer to the ITAT Mumbai Bench order in the case of Assistant Commissioner of IT vs Deepak S. Bheda dated June 15, 2012.

In order to avail the benefit of capital gains exemption under section 54, the seller should purchase a residential house either 1 year before the date of sale/transfer or 2 years after the date of sale/transfer of the property. You sold in August and September 2023 but purchased in November 2022. So you would be eligible to claim capital gains exemption under section 54. Budget 2023 introduced a cap of Rs 10 crore on capital gains for claiming exemption under section 54. In order to avail benefit under section 54EC, which involves investment in specified bonds to save capital gains tax, the investment should be made within six months from the date of transfer. Moreover, section 54EC has a limit of Rs 50 lakh during any financial year. Also, in the explanation to section 54EC subsection 2, the term ‘whole or any part of capital gains in long term specified assets’ makes it clear that the exemption under 54EC is available even when part of the capital gain is invested in long term assets. You may refer to the ITAT Mumbai Bench order in the case of Assistant Commissioner of IT vs Deepak S. Bheda dated June 15, 2012.