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Government-guaranteed pension, inflation-beating returns from safe investment schemes, low rate of inflation and the comfort of a joint family — all these four pillars on which retirement planning rested earlier have disappeared. The new reality is that the recently retired or tomorrow's retirees will need to balance high expenses with uncertain returns on their invested capital, longer lifespan with ever looming dangers of outliving their accumulated retirement corpus and an urge to hang up their boots early. And all these without wanting to compromise on their lifestyle.
For retirees, the biggest enemy is inflation. Just as compounding works in your favour, inflation eats away the value without your knowledge. A retirement corpus of Rs 1 crore may seem to be a lot of money today but over 30 years an inflation of 8% can reduce its equivalent purchasing value to less than Rs 10 lakh at today's prices.
And worse, over the last 30 years consumer inflation was in double digits many a times. A lowto-moderate inflation rate of 7-8% does not attract attention of the working class. That's because prices of products and services do not seem to be shooting up 'fast' but over the years, it nevertheless erodes your money's value quietly.
For example, a person with a retirement corpus of Rs 50 lakh feels it will help him/her live well. Now if he invests this corpus at 8% per annum in a safe investment avenue, he/she will start eating into this corpus from the age of 72 years and by the time he/she is 86, there may not be any corpus left. And these calculations are based only on normal day-today living, and no big expenses are considered. And if inflation rate is in double digits, the matters could be worse. Thus, you need to go beyond safe investment avenues if you want to live long. So you should invest a calculated amount in some high growth investment product that returns enough to offset the low returns of safe avenues. This will not only support your expenses but will help you pursue your dreams post-retirement.
You can follow this 4-step retirement strategy to preserve your nest egg and also live a comfortable retired life:
Know how much you need
The income that you need to live off after retirement is approximately 65-70% of the income that you need while working, considering no big purchases or expenditures. However, this rule of thumb may not be accurate for everybody since people are living longer than ever and retiring in good enough health to incur additional expenses (travel, entertainment and so on). This holds good if you meet the following criteria: ä No rent or loan on your house,
Your children are financially independent, You have fewer taxes due to lower income,
And you have no debt
Decide your asset allocation
Don't put all your nest eggs in one basket because that's a high risk strategy for your postretirement corpus. It should be a mix of different asset classes and investment instruments with debt and fixed income instruments forming the backbone of the allocation. Have some equities and prefer it through the mutual fund route.
However, this should be based on your risk appetite.
Choose appropriate products
Once the asset allocation is decided, choose the right investment vehicles to attain your goals. Invest in a large number of instruments that will assure regular income and also allow your corpus to grow in tandem with your withdrawals and rising inflation. This strategy should alter with the age or stage of the life after retirement. So, for the first 6-8 years after you retire, allow your funds to grow at a rate faster than the withdrawal. Even as you use the interest earned through debt options to meet your expenses, invest in equity through mutual funds or monthly income plans. However, all these require strict monitoring after you have parked your funds in various instruments.
Formulate a withdrawal plan
The final step in your retirement planning is to formulate a withdrawal strategy with two essential components: liquidity and growth. It should give you regular income and also grow fast enough to take care of future expenses. Systematic withdrawal plans (SWPs) in mutual fund schemes and rentals from a good residential/commercial property are ideal strategies.
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