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I am from India. Stating this upfront to focus on Indian context , while the question is generic in nature and would like to get a wider response

By way of background

  • I am in late fifties , retired with no loans or obligations - all basic requirements owned way back
  • Health insurance adequately covered for me and wife
  • Life insurance adequately covered
  • Have adequate liquid funds to meet foreseeable emergencies
  • My monthly income is from two sources that more than adequately meets all expenses and leaves enough to add to savings

    • Veteran pension - this is 70 % of income (post tax). This is approximately adjusted to inflation rates, so it matches with inflation , but not exactly and that's not a big concern for me. That's an important factor given the high inflation rate 5 to 7%
    • Fixed Deposits or CDs which bring me about 30 % of monthly income (post tax)
  • My savings are divided in two parts

    • Fixed deposits (CDs) - mentioned above

    • Investment in equity based Mutual funds . This was just a nest egg with no goals or time frame in mind but was broadly looking at expected value in 2023 being INR 6.8 million. I invested INR 2.2 Million in June 2014 . It was in a bunch of mutual funds ,well researched and conservative in nature , targeting annual returns of 11.65%. The current value is INR 3.6 million (exceeded the target growth as of date)

Dilemma

Since this was just a nest egg with no particular goal in mind I was toying with the idea of cashing out and reinvesting in bonds which give around 7 to 8 % interest (which is taxable @ 20% , bringing down the returns rate). This would increase my monthly income by about 18% (post tax)

Reasons for this

  • Main reason: Risk of erosion in stocks Vs assured capital growth at lower returns . I am aware of virtue of long term investing in equities but less inclined to take risk since I am not earning now . I was actively invested in stocks when I was earning and my risk appetite was more : )

  • Secondary factor. Beating the tax by cashing out now . Few days ago, the tax laws were amended. Broadly speaking if I cash out by end March this year I pay zero tax. Beyond that, I pay 10% of tax on gains ( = sale price in future date minus sale price as on 31st January this year)

Part of me says you don't need that money now, it has grown well and give it a chance to grow further for another five years at least before taking a call and why go in for lower returns?

Other part of me says heck, you don't need to bother about risk of losing money given the vagaries of stock market ; cash in now or or on the next upsurge in market

So folks, please help me decide

I believe I have given enough details to provide for an answer - please ask if you need more

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    Do you get the same tax benefit if you "cash out" and then put the money again into stocks (but with a higher basis for future tax calculations)? – Ben Voigt Feb 4 '18 at 19:16
  • One thing that you have not considered is what happens to your spouse when you pass on. Does your pension stop entirely when you pass away or does your widow get some benefit till she passes on? Maybe 50% of your pension amount? So, have you made adequate provisions for her? Or does she have her own pension/is independently wealthy and you do not need to consider her needs? – Dilip Sarwate Feb 4 '18 at 22:35
  • @BenVoigt: The law is in proposal stage now but I think it won't be dependent on what you do with money but the fact that you are selling – anon Feb 5 '18 at 1:23
  • @DilipSarwate: Good point 1. She gets 50% of pension 2. Life insurance = 2.5 years of my pension 3. FDs and MFs - she is the primary owner and I am joint owner (didn't mention this to keep it simple and not bring in tax laws). Both of us are in the same tax slab of 20 % though this year I may move to 30%. I think it is adequate coverage for her but I am open to suggestions though that's that not the question :) – anon Feb 5 '18 at 1:33
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I am in a somewhat similar situation. I am in my 60's with all bases covered - no debt, health insurance covered, fully paid long term care insurance, two variable annuities covering all of my living expenses as well as sufficient assets to cover whatever time I have left.

Like you, my risk appetite has diminished. I have reached the point where keeping it is far more important than making it. It would bother me a lot more if it were to go down with me than up without me (tho I don't mind a some upside :->). So I have been shifting toward risk defined strategies utilizing options.

I had a third variable annuity that doubled in the past 9 years and having realized that the first two annuities will cover my income needs, I moved this one out of 100% market exposure two weeks ago (now in a money market) and I'm contemplating putting it into a SIO annuity or synthetic equivalent (see my Question posted yesterday) that offers upside potential while insuring a portion of the downside. I'm confident that if the sh*t hits the fan (a bear market, not a crash), I can defend these positions to the downside (ameliorate the losses significantly).

For additional income, I buy investment grade preferred stocks which currently yield about 5-6 pct. Prior to 2010, when we had an interest rate cycle, on average, swapping these out for cap gains tripled the yield. The low rates of recent years squashed volatility and the swapping game but it seems to be coming back to life again. One can only hope...

Assuming that you are not dealing with a high inflation rate and assuming that your 7-8% bonds are investment grade, if I had that choice, I'd grab them in a heartbeat since they would fit my picture perfectly. Should you do that? That depends on which you feel more strongly about, fear or greed. Good luck!

  • keeping it is far more important than making it . Exactly – anon Feb 4 '18 at 14:32
  • Inflation rate is unfortunately high - is about 7%, but that doesn't detract from the points you made, especially choosing between fear or greed when the need is taken care of (tempted to title the question that way) – anon Feb 4 '18 at 15:09
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I don't think the current tax proposal is significant to influence a decision.

The key is risk. As you are adequately funded for your living, the surplus is not critical. So essentially even if you burn the money you are still well off.

So whether to stay invested in mutual funds or FD or spend for a vacation or something else is up to you.

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Disclaimer : Not a financial advisor, just a bit informed bloke.

As you monthly needs, insurance & emergencies are covered, The risk you face right now would be erosion in equity mutual funds.

A better way would be to transfer major part of them to some balanced funds (not in one go but spread out) & play them safe. In case you need to increase your monthly income, keep some (3-5 years of that income value you need) in Debt mutual funds or bonds. You can even consider investing that in senior citizen saving scheme ( when you turn 60).

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