I am 59 years and will retire in March 2025. After my retirement, I will have a corpus of about ₹ 1.4 crore, of which 65% will be from SIP investments. From April 2025 onwards I wish to withdraw ₹55,000 per month via SWP and increase it by 6% every year for the next 23 years till I turn 83 years. Is my corpus enough for the plan? If not, what should I change?
Response: Your corpus of Rs 1.4 crore should comfortably last for 23 years, even if you invest it entirely in debt funds that generate an average annualised return of 7%. You would have a balance of about Rs 30 lakhs after completing 83 years.
But instead of investing your post-retirement corpus entirely in debt funds for SWP, I would suggest you maintain at least 50% equity exposure. This asset allocation strategy would provide you and your successors with a much bigger corpus. Moreover, the returns generated by debt funds are taxed as per your tax slab while being prone to interest rate risks and credit risk. Thus, under the present market conditions and tax-regime, FDs opened with small finance banks would offer much higher risk-adjusted returns than debt funds.
For the fixed income component of your post-retirement portfolio, deposit Rs 7 lakh in a high-yield savings account to meet the post-retirement expenses for the first year. You can consider the high yield savings accounts offered by various small finance banks or private sector banks like IDFC First Bank, IndusInd Bank and Yes Bank. These banks offer savings account interest rates of up to 7.5% p.a. depending on account balance.
After factoring in an inflation rate of 6%, your post-retirement annual withdrawals for the next 4 years would be Rs 7.5 lakh, Rs 8 lakh, Rs 8.5 lakh and Rs 9 lakh. You can open high-yield FDs with the small finance banks in a staggered manner to ensure FD maturity for each month during this four-year period. For example, you can spread the Rs 7.5 lakh for your second year’s requirements by opening 12 FDs of Rs 62,500 each with their maturity dates being spread across each month. You can consider small finance banks like Unity Bank, Suryoday Bank, Fincare Bank, Equitas Bank, Jana Bank and Utkarsh Bank for opening high-yield FDs.
As your FDs and high-yield savings account balance would constitute about Rs 40 lakh, you can invest the remaining Rs 30 lakh of your fixed income portfolio in the Senior Citizen Saving Scheme (SCSS). The interest income generated by this scheme is paid out at quarterly intervals, which would provide an additional cushion to deal with any unexpected upside in inflation or other unforeseen events.
Invest the rest of your post-retirement portfolio, i.e. Rs 70 lakh, in equity-oriented funds by spreading your investments equally among the large cap index, flexicap and aggressive hybrid fund categories through SIPs of 18 months. You can consider the direct plans of ICICI Prudential S&P BSE Sensex Index Fund and HDFC Index Fund – S&P BSE Sensex Plan for the large cap index category; PGIM India Flexi Cap Fund and Parag Parikh Flexi Cap Fund for the flexicap category; and Kotak Equity Hybrid Fund and ICICI Prudential Equity and Debt Fund for the aggressive hybrid category. Route your SIPs through the high-yield savings accounts to generate higher returns.
Redeem from your equity portfolio after every 5 years to replenish your fixed income portfolio, after factoring in the monthly withdrawal requirements for the subsequent five-year period.
An edited version of this article was published in ET Wealth on Jan 29,2024.