My husband and I will be retiring in a year. We work with private companies and will not get any regular pension. We have investments in mutual funds, certain life insurance policies and a provident fund, worth ₹2.3 crore. We want to remove ₹80,000 a month to maintain our current lifestyle and also give ₹1 crore to our children. Will this be possible?
— Name masked on request
It is always better to plan your monthly withdrawal after retirement, as this guarantees your independence and also reduces the possibility of outliving your savings. We will come back to the inheritance part later ( ₹1 crore). Your main goal should be to ensure a stress-free retirement. Many retirees use the compartmentalization strategy for their retirement corpus to build a portfolio between banks, Senior Citizen Saving Scheme (SCSS), Pradhan Mantri Vaya Vandana Yojana (PMVVY) and mutual funds – debt, stocks and hybrids. You will have to account for inflation even after retirement. For example, you will need ₹1.27 lakh per month in 2030 instead of ₹80,000 taking into account inflation of 6%. The idea behind investing in different asset classes is to exit from them at different stages, giving them enough time to grow and take on the limited risk during that phase. You will need a higher retirement capital if you plan to opt only for debt investments, this is also not advisable. At the same time, you should limit risk by investing only part of your portfolio in stocks. You can invest ₹1.83 crore for your post-retirement phase by investing or continuing with ₹29 lakh (FD, SCSS and debt funds), ₹46 lakh (SCSS, PMVVY, debt and hybrid funds), ₹69 lakh (stock funds) and ₹39 lakh (balanced benefit fund). You can withdraw from these buckets for the first 3 years, from 4th to 8th year, from 9th to 20th year and from 21st to 25th year, respectively. The above strategy will take care of your ₹80,000 monthly expenses with inflation for 25 years.
The rest ₹50 lakh can be invested in equity funds and can be passed on to your children or serve as a solid support after retirement. Assuming a return of 12% per year, the inheritance can be close to ₹85 million.
Harshad Chetanwala is co-founder of MyWealthGrowth.com.