With no job, how should we invest to earn say Rs 40,000 per month?
- Hanumantharao Surampudi
According to the 6-per cent withdrawal rate formula, you need Rs 80 lakh to be able to generate Rs 4,80,000 a year or Rs 40,000 a month. A 60:40 per cent investment in equity and debt, respectively, may help you generate this kind of income. If you do not have this kind of corpus, then quickly look for a job so that you can do all your supplementary savings and investments to generate the required income.
Although you want to generate Rs 40,000 now, you may need Rs 45,000 a month after a couple of years, owing to the rising inflation. Most people who are looking for income from their investments have two needs - first, they need adequate income and second, that adequate income should rise with inflation. Further, one's individual inflation could be quite different from the government's disclosed inflation index. So, your need for Rs 40,000 today could rise to Rs 45,000 or Rs 60,000 a few years later. And for that, even your capital should rise. So, if you are consuming 6 per cent of your investment income, then the residual money (which you do not consume) is getting added to your capital, which can support higher income. There are few things to be careful about. Be prepared to reduce your income requirement if the market or your investment is not supporting as much. So, if you are faced with a couple of bad years, you may have to lower your income expectation. Once you are able to build the buffer, then you can safely go with higher income, as your higher capital will support it.
In summary, a simple formula is that with a 6-per cent withdrawal rate, you need Rs 80 lakh to generate Rs 40,000 per month, with 60 per cent invested in equity and 40 per cent in debt. Do your withdrawal from the fixed income portfolio and annually rebalance your portfolio.