Last Updated on July 10, 2024 at 8:52 am
A reader asks, “Can a 45-year-old get Rs. one lakh monthly income with Rs. 3 Crores retirement corpus?”. We will assume the reader wishes to retire immediately with a corpus of Rs. 3 crores.
Let us punch this scenario into the freefincal robo advisor tool.
Note: This retirement planning illustration depends on several inputs and assumptions. Not all of them are shown here. These inputs and assumptions must be changed by the individidual according to their circumstances. Please do not copy these numbers for your personal use without a proper calculation.
Assumptions:
- Age of the investor: 45
- Years in retirement: 45 (life expectancy is age 90)
- Monthly expenses in the first year of retirement: Rs. one lakh. So, the assumed annual income in the first year of retirement is Rs. 12 lakhs.
- Inflation during retirement is 6%. This means the annual income will increase by 6% each year for 45 years.
- Corpus in hand = Rs. 3 crores. There is no other source of income (the robo advisor can handle three sources of increasing income from rent or pension)
Note: When referring to drawing income, we assume the amount withdrawn on the first day of each year in retirement will be 6% higher than the previous year to account for inflation. For the first year, we will withdraw Rs. 12 lakhs and 6% more, or Rs. 12.72 lakhs, for the next year.
The retirement corpus is assumed to be invested in five buckets.
- An emergency bucket to handle unexpected expenses.
- An income bucket to provide guaranteed income for the first 15 years of retirement.
- During this time, investments are made in the following three buckets.
- Corpus from a low-risk bucket will provide retirement income from years 16 to 26. To provide this income, the low-risk bucket will have an asset allocation of 30% equity and 70% debt during the investment period (years 1 to 15 of retirement).
- Corpus from a medium-risk bucket will provide retirement income from years 27 to 35. To provide this income, this bucket shall have an asset allocation of 50% equity and 50% debt during the investment period (year 1 to year 26)
- Corpus from a high-risk bucket will provide retirement income from years 36 to 45. To provide this income, this bucket shall have an asset allocation of 100% equity during the investment period (year 1 to year 35)
The retirement corpus will be divided into five parts—overall asset allocation excluding the emergency bucket, 67% fixed income and 33% equity.
The key question is, is Rs. 3 crores sufficient? Just about! The robo tool suggests Rs. 3.06 Crores are necessary. So I guess one can make it work with Rs. 3 Crores. To be on the safe side, considering you wish to quit your job at age 45, we recommend working part-time and developing active and passive income streams to reduce the stress on your retirement corpus.
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Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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