To live a relaxed retired life, one needs to build the financial cushion to fund it. Generating a regular income from an accumulated corpus can help lead a comfortable post-retirement life. Since it is all they have, senior citizens usually prefer the conservative route. They also want the investments to be liquid enough for using them in an emergency. So how and where should retirees invest?
Before deciding where to invest, it is crucial to calculate the actual need. Estimate how much you would need every month. Take into account any income you may have from other sources, like the rental income, pension or your heir contributing regularly. Check what percentage of the total corpus you plan to consume every year. If it is more than 4-6 per cent, bring down your expectation. For example, if you have a corpus of Rs 1 crore, the annual withdrawals should not exceed Rs 6 lakh.
If you plan to withdraw more than 6 per cent of the total corpus in a year, you risk battling lower income during the later post-retirement years. Do not ignore inflation. If Rs 50,000 is enough for you to meet the monthly expenses today, that may not be the case five, 10 or 15 years hence, and you would need much more. Considering the same, retirees must work on a plan that helps them generate inflation-adjusted income over the years. And contrary to what many believe, that is why they must invest in equities even after retirement. That's the only way to get inflation-adjusted returns over the long term.
You don't have to invest all your money in equities. Just a tiny portion, say 30-40 per cent, meant for the long term. And the rest can be in fixed income instruments. The government backed-guaranteed return schemes should be the first choice. These are the Senior Citizen Saving Scheme (SCSS), Pradhan Mantri Vaya Vandana Yojana (PMVVY) and Post Office Monthly Income Scheme (PO-MIS). An individual can collectively invest up to Rs 34.5 lakh as the maximum possible amount. These risk-free plans give you a guaranteed income at predefined intervals - monthly, quarterly or annually.
The remaining surplus can be invested in high-quality debt funds from where you can set up a systematic withdrawal plan (SWP). But remember, the annual withdrawals should not exceed 4-6 per cent of the corpus. Make sure to rebalance your portfolio once a year to maintain at least 30-40 per cent of the money in equities.
Still wondering how to go about it, read The ultimate portfolio for a retiree.