Retire in style. Here's your ultimate investment guide to having a comfortable and secure retirement.
14-Mar-2023 •Ravi Banagere
I am 59 years old and will be retiring next March. After retirement, I will be having a corpus of about Rs 1 crore. My monthly expenses would be Rs 1 lakh per month. Can you kindly advise me on investment strategy and the best financial instruments to invest in? I am ok with medium risk. - Bhanuprakash
If you want to generate a monthly income of Rs 1 lakh through a corpus of Rs 1 crore, you are aspiring for an annual return of 12 per cent. However, it's important to note that equities, which usually deliver such returns over the long-term, are erratic and don't provide linear returns every year.
Furthermore, it's advisable not to consume the returns generated during the year completely. You should leave a part of it to help the corpus grow and support inflation-adjusted income in the future. For example, if you consume the entire annual return of Rs 12 lakh (12 per cent of 1 crore), your corpus would remain at the same value of Rs 1 crore even after five to seven years. However, due to inflation, generating Rs 1 lakh per month in the future may not be sufficient, and you may require a more significant amount. Thus, it is essential to let your corpus grow to meet future financial needs.
In your case, your expected return is too high and you should reduce it. If you continue to withdraw money at this rate, you may exhaust your savings too quickly. To ensure inflation-adjusted income in the future, aim to withdraw no more than 6 per cent of the value of your accumulation as income in any year. In this case, it works out to Rs 6 lakh in the first year.
Where should you invest?
When it comes to investments, you should allocate at least one-third of the corpus in equities to get inflation-adjusted returns. For the remaining two-thirds, consider fixed-income allocation in government-backed guaranteed return schemes such as Senior Citizen Savings Scheme (SCSS), Post-Office Monthly Income Scheme (PO-MIS), and Pradhan Mantri Vaya Vandana Yojana (PMVVY). SCSS currently offers an annual return of 8 per cent, and the interest is paid out on a quarterly basis.
The maximum investment limit for SCSS has been hiked to Rs 30 lakh (from Rs 15 lakh) in the recent budget, while for PO-MIS, it has been raised from Rs 4.5 lakh to Rs 9 lakh. However, it's important to note that PMVVY is about to close this March 2023, as there is no news of its extension.
Additionally, allocate some money to high-quality short-duration funds for rebalancing your portfolio and to meet any emergencies. For more information on constructing an income-generating portfolio, refer to our old article titled 'The ultimate portfolio for a retiree'.
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