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The framework for regular income post retirement

Ashutosh Gupta discusses how one should go about investing for deriving regular income post retirement

I am 55 and intend to take voluntary retirement. At present, my monthly expenses are Rs 50,000. I have a retirement corpus of about Rs 80 lakh. Please suggest where I can invest my corpus so that I can get a steady monthly income throughout my life.
- Amites

You are looking to derive a monthly income of about Rs 50,000 per month from an accumulated corpus of Rs 80 lakh. That translates into an annual withdrawal rate of about 7.5 per cent.

Now there are two issues with that. One, at 7.5 per cent, the withdrawal rate itself is far too aggressive and may end up depleting your capital very soon. Besides, since you are looking to retire early, you will need to depend on this corpus for your living expenses for that much longer. So, I suggest you rethink your retirement planning.

In a broad framework, we believe that one should not aim for a withdrawal rate of more than around 5 per cent annually. With that kind of a withdrawal rate, your monthly income from this corpus would come around anywhere in the range of Rs 30,000-35,000. If that's inadequate, which presumably it might be, then as I said, you need to rethink his decision to go for voluntary retirement at this stage.

To discuss a broad framework of how one should go about investing for deriving regular income after retirement, one can look to invest 35-40 per cent of the corpus in equity investments and then, look to park about the income of the next one to one-and-a-half years in liquid funds from where one can set up an SWP to derive monthly income. And as I said, ideally, this withdrawal should be in the range of 4.5-5 per cent. Now, the remaining corpus can be invested in a few high-quality fixed-income alternatives.

Once one has set up a retirement portfolio in this way, one should look to rebalance annually to restore the equity allocation in that range of around 35 per cent and keep transferring income requirements for the next one year in a liquid fund from where the SWP can continue, and one can keep deriving regular income.
So that's the broad framework one can follow to derive regular income, but again, as I said, this plan may not work very well with a withdrawal rate as aggressive as 7.5 per cent.

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