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On nearing retirement, how should one begin to invest for generating regular income?

Dhirendra Kumar explains the parameters one should consider while planning to invest for generating regular income post-retirement

How should one proceed to invest the accumulated corpus on nearing retirement for generating regular income? Kindly also advise on health insurance.
- Vasant Shenoy

As you get closer to your retirement, you have to estimate the income requirement from your investment and see it in relation to the total accumulated money. Assuming you have Rs 1 crore of accumulated savings, and you will likely need something like Rs 50,000 a month. It translates into Rs 6 lakh a year. This will be six per cent of the accumulated Rs 1 crore. A way to deal with it is to invest your money so that your accumulated corpus after taking this Rs 6 lakh will still grow to the extent that it can beat inflation or at least match inflation so that the worth of your capital is protected.

For this, there is a possibility that a 75 per cent investment is made in fixed income. Investment in fixed income could mean anything like a fixed-income fund, Senior Citizen Savings Scheme, or Post Office MIS. A return from some of the investment vehicles will be guaranteed. It will provide you extra comfort that all of your money will not be dependent on the market. So a 75 per cent allocation to fixed income and 25 per cent to equity will ensure the worth of your capital is protected. Today you might need Rs 50,000 a month which is Rs 6 lakh a year, but two-three years from now, with rising inflation, you might need Rs 60,000 a month. So that is why you must have this equity allocation.

Now coming to your health insurance need. We have a dearth of long-term care insurance. The need for health care has been extended due to greater longevity which many of these health care schemes don't provide. But there is a talk, and the insurance regulator is nudging general insurance companies to provide long-term health insurance. So let's wait for that. But as of now, one has to choose from the options available. We will soon have a report on Value Research, which will give you the best health insurance for different kinds of backgrounds because choosing the right health insurance could be complicated. It is not an investment you have to make. It is careful spending on health insurance.

There is one more thing which you should look at. Many of the life insurance that you buy also comes with the option of a rider. Like a critical illness rider, if you have any of those stated critical illnesses, you will be getting something like Rs 10 lakh or Rs 15 lakh on that account. They are very useful because, in term insurance, your dependents will get the money in the case of death, but critical illness will impair your ability to earn or your need for spending on your health care might go up dramatically. And that is when these term insurance riders come in very handy. So maybe consider adding those critical illness riders carefully into your term insurance by paying extra. We will soon have a report on value research that will give you all the nuances of your health condition, the different backgrounds, and the suitability of various health insurance plans for different people.

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