Quoted (Economic Times) - Jan 2023 - 58-Year Old Planning for Retirement Income from 2024

I was recently quoted in Economic Times WEALTH (30 January 2023) in the Q&A section where a panel of experts answers readers’ questions related to various aspects of their personal finances. .

The exact question is given below –

Here is the article page where the query is answered:

Here is the text version of the query and the reply –

Q – I am 58 years old and superannuating in July 2024. My current household expense is approx Rs 60k per month. I have an apartment in Bangalore and one ancestral house in Kolkata. After retirement, we plan to live in both these places alternatively. The market value of my present savings is approx Rs 2 cr and the break-up is below:

1. Equity: Rs 23 lakh

2. Bank FD @ 7% interest: Rs 3 lakh ( to be matured from 1 August till 1 Dec 2024, Rs 53k per month)

3. NPS (Tier I & II): Rs 38 lakh

4. EPF: Rs 70 lakh

5. Superannuation fund: Rs 43 lakh

6. Gratuity & leave encashment: Rs 13 lakh

7. Pension from LIC (started): Rs 9,500 per month

8. My wife’s savings in NPS: Rs 10 lakh

9. Her savings in FD: Rs 4 lakh

My wife and I have family-floater health insurance of Rs 5 lakh base and Rs 45 lakh of super top-up for which we pay Rs 50K premium per year. I may earn a take-home salary of Rs 60 lakh till my retirement. I have major expenses of an outstanding home loan of Rs 7 lakh and son’s marriage expenses about Rs 15 lakh. I have SIP for NPS Tier II for Rs 50,000 per month and for equity Rs 50,000 per month and one lumpsum investment of Rs 50,000 per year in NPS Tier I for tax savings. I wish to start a bank FD of Rs 50,000 per month with maturity to align with my post-retirement period. I have already covered six months from my retirement and with 19 months to go for my retirement, I plan to do 19 more monthly Rs 50k FD investments, so that I have assured income of Rs 55k (with interest) from FDs and Rs 9.5k from LIC for 25 months from my retirement. Please advise if it is possible to generate Rs 1.5 lakh per month post-tax income from August 2024. If so, where should we invest our money?

A – You have already decided on a strategy to use monthly 50K FDs for the next 1.5 years which when combined with LIC Rs 9500 monthly pension, will take care of the first 2 years of your retirement (Aug-2024 to Jul-2026). This is a simplistic strategy which will give you a comfortable runway of 2-2.5 years before we need to look at other investments for income generation.

The timelines for son’s marriage may not be fixed but it is assumed it will be in the short term. So if its near to your superannuation, then the money coming from Gratuity & Leave Encashment (Rs 13+ lakh) can be earmarked for this goal straightaway.

Your monthly home loan EMI details aren’t available but it is assumed your loan would be structured to be over with your superannuation and hence, the Rs 7 lakh outstanding today will be over by 2024.

Your question that even though your current monthly expenses are Rs 60,000 monthly, you want to explore if generating Rs 1.5 lakh post-2024 would be feasible or not. Its not clear why your expenses will suddenly shoot up from Rs 60,000 to Rs 1.5 lakh monthly in just 1-2 years time. The current asset base earmarked for retirement (approx. Rs 1.9 Cr), even when funded via extra Rs 50,000 monthly in NPS and Rs 50,000 in Equities (stocks/MF) and EPF contributions (monthly amount unknown), may not be enough to generate Rs 1.5 lakh monthly (and increasing with inflation) from 2024 onwards till life expectancy of 90. So you should first reassess the need for Rs 1.5 lakh income vs current requirement of Rs 60,000.

Assuming you are able to dial back to a lower monthly income requirement, here is what can be done. Let your monthly 50K each NPS, equity and EPF continue as it is. On superannuation, delay EPF withdrawal for as long as feasible. This will help generate 8% plus in tax-free returns for a few more years. Your ongoing FD strategy will take care of expenses up to 2026. The superannuation payout of Rs 43 lakh in 2024 can be parked in debt instruments like SCSS, PMVVY (if available then) and debt funds. Once your FDs are exhausted, you can use the interest payouts from SCSS/PMVVY and SWP from debt funds to manage your expenses. Later on, you may have to regularly transfer funds from NPS Tier 2 account to these debt instruments to replenish. The annuitization of NPS Tier 1 corpus may not lead to any significant pension in your case as bulk of the money is going towards Tier 2 account.

In the meantime, when your EPF is withdrawn (close to 2029-30s), park more funds in a combination of debt instruments and a small portion towards increasing equity exposure a bit further. Please note that till, there wouldn’t have been any need to withdraw fund from your equity corpus which would have been growing by itself.

Few year’s down the line, once you have decided which will be your primary residence, consider selling off the other property to further prop up your retirement corpus and extend its longevity. That is assuming you are open to the idea of doing it and if you too understand that operational management of a property in a different city for someone in age 70s may not be that easy.

Your current health insurance coverage of Rs 5+45 lakh seems sufficient. Just to be sure, please do check the network hospitals that offer cashless facility in and around the pin codes where you will be spending most of your time post retirement in both cities where you have your houses in Bangalore and Kolkata. Your wife’s FD of Rs 4 lakh can be kept as a buffer for unexpected or unplanned expenses.

You can read my previous responses in Economic Times Ask The Expert section using the below links: