I was recently quoted in Economic Times WEALTH (20-26 November 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 retiring on 30 November 2023. I shall get Rs 75 lakh from my PF and gratuity. My PPF balance is Rs 25 lakh. I shall get Rs 75 lakh in November 2025 from a ULIP. We are a family of three and live in my own house in the suburbs of Kolkata. I don’t have any financial liabilities. I want to earn Rs 50,000 per month from my savings. Please advise?
A – Your current financial asset base that is immediately available is about Rs 1 crore across EPF and PPF. Another lot of Rs 75 lakh will become available in about 2 years time via a ULIP maturity as informed by you.
You want to install a system that generate Rs 50,000 monthly (or Rs 6 lakh annually) for your post-retirement income requirements. We will use a 2-bucket system for that.
The first bucket will be made up of SCSS, FD and PPF. At first, put Rs 30 lakh in Senior Citizen Savings Scheme which at 8.2% per annum, will generate Rs 2.46 lakh in annual interest income. This will be via quarterly payouts. Secondly, put another Rs 30 lakh in Bank FDs that will easily give 7-7.5%. This will provide another Rs 2.2 lakh in interest income. You can opt for monthly interest payouts for this. Given the current high-interest rate scenario, it is advisable that you lock-in high rates for longer durations. Thirdly, and assuming your PPF account (having Rs 25 lakh) has completed first 15 years and is in 5-year extension periods with contribution, you can make one withdrawal each year tax-free manner. At 7.1%, interest income of Rs 1.7 lakh is generated each year, which you can withdraw leaving Rs 25 lakh principal intact. So a combination of SCSS (Rs 2.46 lakh), FD (Rs 2.2 lakh) and PPF (Rs 1.7 lakh) will provide more than Rs 6 lakh in interest income, which will be sufficient for your Rs 50,000 monthly requirement.
The FD portfolio can also act as an emergency / medical contingency fund and as an ongoing liquidity reserve. While renewing, please divide the FDs into several smaller FDs so that your father doesn’t have to break one large FD when he has small requirements.
The remaining Rs 15 lakh can be invested with some equity allocation to grow and generate inflation-beating returns. But this should be done only if your risk appetite allows for it. The money can be diversified and put into 2-3 schemes from categories like Large cap Index funds, Flexicap funds, Aggressive Hybrid funds. A suggested approach can be to have the core made up of about 25-30% in Largecap funds, 25-30% in Flexicap Funds and remaining 40-50% in Aggressive Hybrid funds. And this deployment can be done in a staggered manner over the next 1-2 years to average out the entry into equity allocation. But do note that, ideally, if investing in equity funds, you should be willing to wait for at least 5-7 years to allow equity to deliver decent returns. If for some reason you are unwilling to invest in equity funds, then we need to allocate the remaining money in debt via options like Post Office MIS, debt funds, floating rate bonds, etc.
The amount in ULIP (Rs 75 lakh) which will become available only in 2025-26, will also be deployed into these 2 buckets based on the then market conditions and any change in your income or other requirements.
Also, please make sure you have some health insurance in place.