How can you ensure that your retirement corpus lasts a lifetime?
Posted by: Uma Shashikant on Aug 14, 2017, 06.30 AM IST
Prateek has just retired from his teaching job with an accumulated corpus of Rs 1 crore. He lives in his own house in Mumbai and his children will soon embark on their own careers.
Prateek fears his retirement corpus is not big enough and will not last too long. He expects his post-retirement life to stretch over 15-20 years. How can he ensure he does not outlive his corpus? What are his options?
Prateek needs a steady cash flow, as he does not have the luxury of a big corpus to invest and earn regular pension from. Without wasting any more time, he must try to look for ways to supplement his income. Going back to work on a contractual basis must be explored as an option.
In the absence of a sufficient corpus, he cannot afford the luxury of leading a completely retired life. If he goes back to work, his retirement corpus remains untouched for some more time. The money can remain invested for longer and accumulate while his income can take care of his monthly expenses.
It might also be a good time for Prateek to review his existing investment options. A completely conservative fixed-income investment portfolio won’t help.
In case the supplementary income is insufficient, Prateek might have to consider making some tough choices. He could sell off his current home, move to a smaller one or move to a tier-2 location. The sale proceeds would add to his retirement kitty, while moving cities could actually lower his living expenses.
In case he considers renting out his property for the additional income, he must weigh it in terms of the percentage return he will get on his investment in rental yield as against return expected by investing the sale proceeds. Typically, rental yields in India are much lower than what some of the other investments might deliver. Reverse mortgage, care home for the aged or moving in with either of his children should be his last resort.
In the absence of a large-enough retirement corpus, Prateek needs to put all his assets to work in such a way that his kitty can grow bigger. Most importantly, in order to provide his corpus the chance to grow, he needs to have some exposure (20-25%) to equity to stop inflation from eating away his savings. This is his best chance to make up for the lost time.