Creating a retirement corpus is one of the primary financial goals for many people, especially middle-class salaried individuals, in India. It could be a daunting task to reach the right estimate for a sizeable retirement corpus that can sustain a lifetime.
Even after generating a large retirement corpus, it's important to invest the funds strategically for a steady income during your entire retirement period.
A combination of multiple investment instruments like FDs, SWP and annuity plans could be helpful in generating steady monthly returns after retirement up to the age of 100 years.
A recent report titled ‘The Science of Retirement Planning: Navigating Hidden Risks in a Long Retirement', prepared by Omniscience Capital, suggests how four investment options can be used for a steady income over 40 years after retirement at the age of 60.
The report assumes a retirement corpus of Rs 1 crore at the age of 60 and calculates how investments will generate monthly returns of Rs 50,000 over a 40-year horizon, with payout at ages 70, 80, 90 and 100.
The report compares FDs, life annuity plans, SWP (Systematic Withdrawal Plan) and ScientificPay options based on factors like inflation protection, lifestyle impact and risk.
Let's see how the different investment options could help generate a monthly income of Rs 50,000, as per the report:
Fixed Deposits
These instruments offer fixed returns (typically 1.5% over inflation), the report said, with a five-year lock-in period and comparatively low risk. However, the returns are fully taxable and may fall short to keep pace with inflation over long-term horizons. The corpus is calculated to last till 75 years of age, meaning if you live longer, you might face a cash crunch.
- Cashflow vs Needed at 70: Rs 4.8 lakh/Rs 10.7 lakh - Deficit
- Lifestyle impact: Downgrade
- Risk profile: Conservative
Life Annuity
Many life annuity plans offer guaranteed income for life for an upfront lump sum investment. However, while they address longevity risk, the investments fail to keep up with inflation.
- Cashflow vs needed at 70: Rs 6.2/ Rs 10.7 lakh - Deficit
- Lifestyle impact: Downgrade
- Risk profile: Conservative
ALSO READ | Starting At 27? Here's The SIP Plan You Need To Build Rs 1-Crore Corpus
SWP (Systematic Withdrawal Plan)
SWPs that use hybrid funds offer market-linked returns. The investment depends heavily on market performance and disciplined withdrawals. These investments still fall short of expected income.
- Cashflow vs Needed at 70: Rs 7.3 / Rs 10.7 lakh - Deficit
- Lifestyle impact: Downgrade
- Risk profile: Aggressive
Scientific Pay
ScientificPay can meet income needs with an equity-based strategy. The report suggests a 75:25 equity-to-debt allocation for steady incomes over 40 years with a corpus of Rs 1 crore.
The equity part of the investment is designed to drive long-term growth to preserve purchasing power. The debt allocation acts as a stability buffer to fund withdrawals at times of market weakness.
- Cashflow vs Needed at 70: Rs 11.5 / Rs 10.7 lakh - Surplus
- Lifestyle impact: Upgrade
- Risk profile: Aggressive
Maintaining a retirement corpus involves choosing investment options wisely. There is no fixed strategy that can work for everyone. The key is to pick investments that can protect against inflation and create a long-lasting fund.
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