How to Invest Money for Retirement Using Mutual Funds?


Last Updated on 21/02/2019 by Deepak Singla

Retirement is the most awaited and memorable moment of an individual life. It can be defined as the withdrawal of a person from his occupation, position or from his active working life.  Some people choose retirement option when they became eligible to receive private or public pension benefits but in certain cases, some are forced to retire due to unfit bodily condition or any type of physical impairment. Therefore, for a working professional, it is always advised to start planning and investing for retirement at an earlier age to achieve financial stability before retiring age.

When it comes to retirement planning, investors usually contact an experienced financial planner who can suggest the best retirement scheme to them.  Retirement looks different for each person because many factors like life expectancy, risk tolerance, your income needs, alternative sources of income etc are taken into consideration for it.  Also, retirees need to be careful while choosing appropriate retirement investment plan to fulfill their particular needs because such type of investments is meant for income and preservation, not for only growth purpose.

Therefore, it will not be wrong to say that retirement investment is a delicate balancing act and retiree must invest in a particular plan with smart tactics to get successful savings for future. Retirement planning through mutual funds is a smart approach to build strong financial wealth. Mutual fund schemes are the best saving options as it can keep pace with inflation and assures a high probability of providing return when the policy gets successfully matured.  Your money is a minimal risk level when you invest a certain sum for a long-term period in any specific mutual fund scheme.

Here are some ways that will help you to take right investment decision for retirement:

Start Planning with 4 Percent Rule of Retirement Income

Before you start planning for your retirement, the most important thing that you should consider is to first start planning for a withdrawal rate.  For such purpose, a general 4 percent thumb rule of retirement income plays a significant role. You can understand the concept of 4 Percent Rule with the following example. Suppose you need Rs 40,000 per year from your retirement account.

To get such amount as a return, your starting portfolio must have a value of Rs 1,000,000 (as 4 % of 1,000,000 are 40,000).  For a retiree, the 4 % withdrawal formula offers a high probability of acquiring attractive return in his retirement portfolio account.

Invest in Best Retirement Income Funds for Retirement

For a retiree, there are some specific mutual funds schemes available under the category ‘income replacement funds’ or ‘retirement income funds’ which are designed for building strong financial wealth.  Usually, the retirement income funds come with a fundamental objective of balancing preservation of assets, income, and growth on a priority basis. When someone chooses a retirement plan, his prime focus is on attaining positive returns above zero percent.

Once, it is planned well, his second priority is to attain returns at or above inflation prior to growth of assets. All these parameters play a vital role in achieving financial stability but sometimes the significant growth of assets above the rate of inflations usually needs extra exposure to market risk which eventually affects the outcome of a financial objective.

For choosing a decent retirement income funds, one should review the past performance of such financial instruments but it can’t be considered as a guarantee of a future result. However, both funds offer a good return to the investor either at or above 4% average annually if the requisite sum is invested regularly on time.

Invest in Balanced Funds for Retirement Planning

Similar to retirement income funds, balanced funds are also amazing asset allocation funds in which the asset allocation serves a particular investment style. They are also known as hybrid funds as they are derived from a combination of underlying investment assets like bonds, stocks, and cash.  Hybrid funds also come under moderate risk and aggressive risk features which can be chosen by an investor as per his risk-taking ability from available options.

Related: A beginner’s guide to investing in mutual fund

Invest in Fixed Income Funds for Retirement

When it comes to building a mutual fund portfolio you can consider the term fixed income as a part of the portfolio consisting of funds having a minimum market risk. Fixed income funds generate stable returns in an investor profile after the completion of maturity tenure. You can invest in varieties of investment options in fixed income mutual funds like money market funds, different types of equities, bond mutual funds, and Certificates of Deposit. All these fixed investment schemes generate a reliable source of income for an investor after a retirement.

Invest in Dividend Paying Stock Mutual Funds for Retirement

Dividend Paying Stock Mutual funds are also good investment option for retirement planning in which the income is generated is comparatively higher than fixed income bonds. Such investment decision establishes a smart retirement portfolio and the investor is free to utilize the received dividends either as an income or he can use it to buy more shares of the mutual fund.  It is a decent retirement scheme for those investors who look for a reliable source of income after attaining a retirement age.

Money Market Funds for Retirement

Money market funds are the important aspect of a retirement asset allocation and it quite helpful in receiving tax saving benefits. These funds generally do not offer high yields but people who come under higher tax brackets can save some percentage of their taxes by using it for their taxable account or tax-deferred account.


These are some amazing investment option which one can choose while planning for a retirement. However, before choosing any retirement plan, one should consult with a financial advisor to make a wise investment decision. So, start planning for your retirement with these options and secure your future from now.