I was recently quoted in Economic Times WEALTH (4-10 March 2024) 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 56 years old, living in Pune and want to retire in the next 3 months. I have no loans and I own a house property worth Rs1.20 crore which is rented in Bengaluru, while I rent a property in Pune. I have Rs 2.57 crore in FDs, Rs 3.25 crore in mutual funds and Rs.1.85 crore in equities. I have a Rs 50 lakh term life cover each for myself and spouse and adequate health insurance. We expect around Rs.1.20 crore from our Provident fund. Should I reallocate some of my assets and how much can I spend comfortably per month with this corpus assuming a life expectancy of 80 years.
A – Your current total financial asset base is about Rs 8.8 crore across FDs, equities, mutual funds, and soon-to-come EPF money. And the asset allocation currently is close to 57%:43% across equity:debt. You want to assess corpus sufficiency for a post-retirement life of about 24 years (between age 56 and 80). But it is advisable to use higher figure of 90-95 years for life expectancy not just because of medical advancements, but also to stress test the retirement corpus sufficiency for a longer period. So it will be assumed that your available Rs 8.8 Cr asset base needs to support your income requirements for another 35 years.
You have not provided your exact monthly income requirement but have instead asked how much can you comfortably spend each month in retirement without exhausting your corpus. For this, if we assume average 6% inflation and conservatively average 7-8% returns on the portfolio (though actual returns of 57:43 equity:debt portfolio are expected to be much higher), then you can comfortably spend more than Rs 1.5 lakh per month (and even up to Rs 2 lakh) without any material risk of running out of money even by age of 90. Of course, I am sure you will not spend a lot just because you can, but this definitely highlights that if your expenses are reasonable, your Rs 8.8 Cr corpus will be more than sufficient for regular needs.
It is noted that you have sufficient health insurance. Mathematically, there is no need to have a life insurance of Rs 50 lakh in your case given sufficiency of the asset base.
It is important to identify which instruments will generate regular income for you in the retirement years. Since actual income-expense data isn’t available, it is difficult to pinpoint with exactness. But your bank FDs of Rs 2.57 Cr can also generate annual interest income of Rs 15-17 lakh, and if the same are in monthly interest payout mode, you can use the same for income requirements. One can even consider parking money coming from EPF into bonds, small-savings schemes, debt funds (or a mix of equity and debt funds) to further augment interest income.
The details of your Rs 3.25 Cr in mutual funds isn’t available. But assuming you aren’t an ultra-aggressive investor, it is advisable to avoid investing heavily in those schemes/funds which have a high allocation to the non-large-cap space.