If you are thinking getting high amount during retirement is tough, here is one more bad news, with latest interest rates coming down, quarter to quarter, setting up continuous, fixed sum may be a difficult task. You may get into the risk of withdrawing capital amount along with your interest income to suit your retired life expenses.
You need to manage your corpus in a manner so that it multiplies even after you continue withdrawing it,
As you may be aware, most of us including Govt. or private sector employees will no longer receive inflation-adjusted pensions. It is purely up to our retirement corpus created during working years and wise investments we make after retirement to take care of living expenses.
If you are retired and in process of selecting investment after retirement, you need to be aware of these things before you take a decision.
Checklist- Stick to these facts
- You cannot afford to make a mistake with your money at this age, hence it is better to concentrate on capital available than the returns on capital. You can even go with safer options like bank FDs for senior citizens /post office schemes, though they offer lower returns but are completely safe, than risking your capital.
- Avoid the temptation to go for higher returns where you have no idea where your return is coming from, means investing in Chit fund schemes, jewelry shop schemes, land/agriculture /real estate who promise you huge returns. Say big No to such schemes.
- Always stick to investment options which you understand well, even if they are boring and never listen to advisors/brokers /agents who show avenues where you get high returns, many such people dupe senior citizens by such fake promises, by diverting your investments to ULIPs/derivatives trading etc. purely for their commission as you have relatively high corpus in hand. Be careful.
- Good news is as per the recent study, people are living longer maybe 30 -40 years after retirement and bad news is your capital amount may not be sufficient to feed your retired life.
- Remember you need to protect your capital also you need to beat inflation during your retirement years. Your current bank deposit interest income may seem to be sufficient to feed your today’s lifestyle but they may not be sufficient after 10 years.
- You need to really find a safe investment, the returns you earn must match your withdrawal rate and inflation. You must generate this on a regular basis, otherwise, you run the prospect of outliving your savings, you will not have enough and that is something you need to be really concerned about.
- to explain above with an example, suppose if you have retirement corpus of say Rs. 1 Cr, you invest this in bank FD which gives you yearly return of 7%, for the first year you can withdraw safely Rs. 60,000/month without touching your capital. but for the 2nd year, the interest rate may come down to say 6%, and your income need will go up due to inflation, in such case you can withdraw only rs. 50,000/month where in your actual requirement may be more than Rs. 80,000/- considering your inflation and your medical expenses may go up.in such case you will be forced to withdraw your capital . for the third year more wors is your capital will reduce, inflation will go up, interest rates will come down and your income needs will also go up and you are going old and need more money for medical expenses etc. likewise may be you will end up in withdrawing all your money in 10 to 15 years.
Remember if your income need is Rs. 50,000/month today, same will be around 1.4lacs/month after 15 years and around 2 lacs after 20 years. this is assuming 7 % inflation rate.
You may evaluate this powerful investment plan
- keeping all your money in any Liquid fund from day 1 as it is the high sum and keeping it even for a few days will earn a good amount. Click here for more info on Liquid funds.
- calculate and keep income required for next 3years in Bank FD/any Debt. fund/Liquid fund and withdraw as planned to cover your daily needs.
- Transfer Balance amount into 2 to 3 Good Aggressive Balanced Mutual funds over a period of 2 to 3 years in equal installments, till such time it can earn regular money in Liquid funds.
- Balanced funds will generally give 12 to 15% returns over a period of time. Always invest in Direct Mutual funds, cut down expenses of brokers, every penny matters!
- Review these investments every 3 years and transfer all your profits to Bank FD/Liquid funds, This amount must be sufficient for the next 3 years and start withdrawing from there.
- This way you will not only earn more than inflation-adjusted returns but also you will generate regular monthly income required throughout your retired life without running out of cash.
Let us see above plan with an example, ( please note amount mentioned in this example is only for ease of calculation, this is not mandatory, You may have the same for any sum)
- if you have Rs. 1 Cr, assuming your income requirement is Rs. 50,000/month.
- You require 6Lacs for first year
- assuming 7% inflation, you require 6.4lacs for the 2nd year. similarly, you require 6.9Lacs for the 3rd year
- So you must keep around 20lacs safely into FDs/Debt funds to take care of your income needs for the next 3 years.
Balance Rs. 80Lacs needs to be transferred to balanced funds gradually over a period of 2 years,80lacs/24months=roughly around 3.3lacs /month. The good thing about Balance funds is around 30 to 35% of your money will be still kept in Fixed income/safe deposit like FDs, balance only will be exposed to the market, which gives comfort.
- These Balanced funds are expected to earn 12 to 15 % /annum returns, even if you assume just 12% for 3 years, your 80Lacs must have earned profits of around 32lacs.
- Now repeat the calculation of income requirement for the next 3 years and move sufficient money to in your FD/Liquid fund accounts. this may be around 25lacs this time, considering inflation.
- So you are only withdrawing a portion of your profits, out of 32lacs, you are withdrawing 25lacs.
- Balance profits together with initial 80Lacs amount will be under work for you to get more returns after 3 years.
- You may repeat this throughout your life.
Hope this will help you all. please share your feedback on my email/comment below.
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