What is the corpus required for a monthly income of Rs 1 lakh?

retirement-corpus

Whether you are retiring soon or plan to retire after a few years, generating a monthly income of Rs 1 lakh will not happen automatically. It requires planning and effort.

If you are starting your career and your retirement years are far away, the goal of Rs 1 lakh monthly income can be easily achieved. However, if you are in your 40s and 50s and have decided to start a plan now, you will have to work hard. You need to be more focused on your investment.

Today, we will discuss things you need to take care of if you plan to retire today with a Rs 1 lakh income per month. Also, we discuss if your retirement has time, how you can decide on the retirement corpus.

Inflation is a crucial factor to consider

If you are looking for Rs 1 lakh monthly income, the first thing you should be careful about is the time. Have you decided on the monthly amount based on your current expenses or have factored in the inflation?

For example, if today your monthly expenses are Rs 1 lakh and you want to retire after 20 years, assuming 6% inflation, you will need Rs 3.2 lakh per month to have the same living standard. We recommend all our clients to give due importance to inflation for all their future planning.

If your current expense is Rs 30,000 today and your retirement is 20 years, in that case, you will need Rs 1 lakh approximately. With these two numbers, you can estimate what you need at retirement.

Also, if you are 60 today and think you will need Rs 1,00,000 and that amount is sufficient – You are mistaken. Again, because of inflation, you will probably need a lot more by the time you reach 70 or 80. If you are looking for a rough estimate, you will have to make certain assumptions:

  • The inflation rate: Given the historical data, you must assume the inflation rate of 6% for all your retirement years.
  • Life Expectancy: It is one of the crucial parameters that would decide how much corpus you will need to retire. It is always better to be conservative in this estimate. Taking life expectancy higher than the average is a good idea. Hence, taking a minimum of 80 years and taking 85 years is on the safer side.

Corpus for Rs 1 lakh month income

Before giving you an estimate, we would like to mention that we have taken inflation into consideration post your retirement years. For example, we have assumed that in the first year would need Rs 12.72 lakh (6% inflation), in the second year, you will need Rs 13.48 lakh, and so on.

Assuming a life expectancy of 85 years, you will need approximately Rs 3.5 crore today. We have also assumed that your investment corpus will generate moderate returns of 6%, and your current age is 60 years.

The numbers will change drastically if you are 40 years and you plan to retire today and require the same monthly income.

It is always better to consult a financial advisor to make such calculations as there are too many assumptions and variables that you may miss. We at Right Horizons have years of experience in solving the complex financial needs of our clients and making their financial journey super easy.

Where to invest your retirement corpus?

One of the biggest mistakes most retired people make is that they invest all their corpus in debt with low returns. Given the high inflation, the returns may not beat inflation.

Also, as explained above, the retirement years can be 20 to 25 years or even more. Note that all your retirement funds won’t be needed immediately. Hence, you can put a certain percentage of it in equity. How much? It depends on how much risk you are ready to take. Within equity, there are some safe options, and you can invest in them. Other options can also give you inflation-beating returns.

Before you go

Making the best use of your retirement corpus and generating steady income is not easy – there are too many variables to take care of. If you cannot plan it yourself, please consult a financial advisor. It is something where you cannot afford to go wrong.

P.S – The numbers and assumption used in this article are only for understanding. The actual numbers may vary from person to person.

When should you start planning for your retirement?

When should you start planning for your retirement

A distance of 100 miles begins with a single step.

The saying holds true for everything big in your life – retirement planning is no different. Retirement planning is one of the mandatory long-term financial goals, yet, most people are not ready to take that first step.

You may be in your 20s, 30s, or even 40s, and retirement seems like a lifetime away, and you always think you can do it later. However, the reality is that your retirement is coming faster than you think, and it will be too late if you do not act now.

At Right Horizons, over the years, we have met clients that are doing financial well but have ignored their retirement planning altogether. Research shows that people usually place retirement planning as the last financial goal. Many don’t even consider it a key event and plan for it. It is crucial for everyone to know the right age to start preparing for their retirement.

The need for retirement planning

Before we talk about the right age, it is essential to understand the need for retirement planning. You must do retirement planning to maintain your desired lifestyle in your later years and ensure financial stability for you and your dependents. Also, it helps you financially prepare for major life events.

The right age to start planning for retirement

The best time to start retirement planning is the day you get your first salary. However, when you start earning, there are other dreams and desires you need to fulfill. Hence planning for retirement gets delayed. After a few years, you get married, your expenses increase, and savings get sidelined.

However, when you start early (for example, in your 20s or early 30s), you have time on your side to start building good habits and compounding savings. You can achieve more with fewer savings if you start early.

At Right Horizons, we tell our clients that if they have not started retirement planning, the right age to start is NOW. You should not delay retirement planning even a single day after reading this article or knowing about the importance of a retirement plan.

Doing what others are doing

We are social animals, and our natural instinct is to follow the herd. When it comes to finances, we tend to do the same – another common financial mistake. Your friend recently went on a Cruise, and now you want to do the same? He invested in the small-cap funds, and you want to do it. You may be tempted to do everything that people around you are doing. You can avoid it by asking yourself questions like – Do you need what others are buying? Once you start asking yourself questions before making a financial decision, you will automatically save more money. Everyone’s financial situation and needs are different. Hence, you must not imitate someone else’s life. You can be in big financial trouble soon.

Why should you start retirement planning early/now?

Below are some benefits of starting early with your retirement planning:

Good Return on Investment :

There is no point in keeping your money in the savings account or having most of your investment in a low-return investment option. Selecting the right investment instrument is the key to generating more returns. When you start early, you have flexibility in choosing an investment instrument and a lot of time to rectify your financial mistakes, if any. With more time in hand, you can opt for high-risk, high-return instruments – with more time, investment risk gets reduced significantly.

Tax benefits :

There are many retirement plans or retirement investment options that help you save tax. When you invest in retirement plans, you can take advantage of various tax benefits that you may not be able to take if you wait for a unit later. Also, retirement plans may assist you to increase the size of your tax returns.

You have time for other important financial goals :

If you are already in your late 40s or 50s and starting retirement planning, your focus will be on this single financial goal. However, when you start retirement planning early, you will never be burdened with the amount you need to put in the retirement bucket. As mentioned above, you can achieve more with less investment. You will have more financial goals like child education as you age. You can work on other financial goals without impacting your living standards when you start early.

Things to know before starting retirement planning :

You can do retirement planning on your own or take an expert’s help. In either case, you need to answer below:

  • Your retirement age: Gone are the days when retirement meant 60 years. Today, many people want to retire early. If that is the case with you, you must decide the age at which you want to retire.
  • Your retirement corpus: You should figure out the retirement corpus you will need before you retire. It will help you invest the right amount to achieve the goal. Advisors at Right Horizons can help you with the numbers as it requires expertise for this calculation.
  • Your post-retirement lifestyle: If you want to live a simple and relaxed life, you will need to save less for retirement. However, if you plan to venture post-retirement, you need to save more. Hence, you must be sure of your lifestyle post-retirement.

Conclusion

Start your retirement planning now. If you are unsure of the path, experts at Right Horizons can help you secure your present and the future. Contact us today and leave all your financial worries on us.

Strategies To Ensure A Retirement Plan With Regular Income

strategies to ensure retirement plan India

Bucket Strategy

Based on when you’ll need to access the funds, the bucket technique splits your retirement savings into three buckets. Its goal is to strike a balance between investment growth and easy access to your money. The first bucket is for your emergency fund and money you plan to spend on living expenses or large purchases in the next couple of years. These assets should be kept liquid in a high-yield savings account so you may access them whenever you need them, regardless of market fluctuations.

The money you plan to use in the next three to ten years goes into the second bucket. Put these monies into more secure investments, such as bonds, balanced funds or certificates of deposit (CDs)/debt funds. As you deplete the cash in your first bucket, you can sell or withdraw funds from part of your second bucket’s assets to replenish the first.

The third bucket can be for long-term requirements beyond ten years.  The money set aside in this bucket can be invested into more risky investments like equity that deliver a superior long-term return and help you beat inflation.   You can invest through equity mutual funds, Portfolio Management Schemes, direct equity or even Alternate Investments Funds under this bucket.

Systematic Withdrawals

If you adopt the systematic withdrawal technique, you’ll take out a fixed percentage of your nest fund in your first year of retirement and gradually increase it to keep up with inflation each year after that. The 4 percent rule, which states that annual withdrawals should not exceed 4% of your nest egg, is a typical rule of thumb you may have heard. You may customize this to about 5% or 6% if you have a higher risk appetite.  Do not keep this too high as you would need to increase this amount periodically to take care of inflation.  Ie.  Do not use the complete return that you are getting on your investments.  In initial years, start with a lower withdrawal rate so that your capital grows and can afford higher withdrawals later to take care of inflation.  Use an professional to help you achieve this if it becomes too complex for you.

Annuities

An annuity is a contract you enter into with an insurance company in which you pay a certain sum of money in exchange for guaranteed monthly payments for the rest of your life. There are two sorts of annuities: immediate annuities, in which you pay the insurance company a lump sum in exchange for monthly checks that begin immediately, and deferred annuities, in which you pay the business but do not receive payments for several years.  You could also look to invest into annuities through the National Pension Scheme (NPS) as well as an alternative.  It is ideal not to completely depend on annuities, especially since most of them do not provide liquidity and flexibility.  However, having part of it into a guaranteed or lower risk annuity can be considered for conservative investors or even to take care of your basic expenses.

A Combination Strategy

One may use a combination of the above strategies to achieve the best tax efficiency.  E.g.  Up to a certain extent you can use annuities as part of one of the buckets.  You could use a systematic withdrawal as part of your bucket strategy as well.   

Tax Efficiency

Different types of savings are taxed differently by the government, and recognizing these differences is crucial to keeping more of your money. It is important to understand the taxation of various investment avenues.  You may use options that are tax exempt like PPF and Insurance. Some avenues may be tax exempt up to a limit which you have to keep in mind.  Capital gains may be tax efficient based on the tenure and the type of investment (debt/equity).  Having your investments tax efficient can also help you manage with a lower corpus as you don’t have leakage due to income tax.  The strategy that you use can be depending on the capital that you have built.  Up to your basic exemption limit, you could use investment avenues that are not very tax efficient.  You can layer this with more tax-efficient investment options.

Why Right Horizons?

We are a leading Financial Advisory Company with branches across the country including Mumbai, Bangalore, Delhi and Chennai. Our aim is to provide our prestigious clients end to end financial and wealth management solution options that they can choose from. 

Right Horizons will take care of all your financial needs under one roof across a whole range of financial assets and services to choose from.   Our contrarian strategy, our deep research orientation, combined with a singular focus on long-term investments, ensures that consumers receive the most tax-efficient and risk-adjusted returns possible. Join our family and experience financial freedom for the rest of your life.

Choose wisely – Annuity options for retirement

ideal retirement image

The hard-earned retirement corpus secured in accounts such as the NPS, PPF, and/or the EPF is the final nest egg for public or private sector individuals who retire after a few decades of continuous service. While certain central government retirees are eligible for pension and lumpsum fund benefits, almost all the private sector employees are not entitled to a pension from their employers and have to fall back on lumpsum (defined contribution plan) corpuses.

As a result, the post-retirement monthly expenditures of the family, most often, depends on corpus inwards from such accounts. There are two important considerations for such corpus inward for individuals – Safety and return on such corpus since this impacts the amount of derived pension on the same for the rest of the life.

Upon retirement, most individuals rely on traditional plans such as a combination of fixed deposits, Sr Citizen savings Schemes and/or plain vanilla Savings accounts to create cash flows for longer duration and this raises several risks of the safety of corpus, interest rate risk and thereby risk of variability of periodic cash flows and the possibility of hardships during retirement years.

Annuities – Should be the first choice for retirement corpus

Annuities should be the preferred choice for retired individuals; however, this product is not very popular due to lack of awareness, perceived lower rate of returns and liquidity issues. Annuities offer the best hedge against the variability of cash flows, against interest rate risks and consistent cash flows for most of the living life.

Today annuities offer a wide range of choices which were not available 5-10 years ago. Flexibility, market comparable rate of return, and wide range of options are available from over half dozen annuity service providers. Besides this, regulations and oversight of annuity providers make this product extremely safe as compared to other market-linked products.

A quick glance of the variety of options from annuity service providers is summarized as below.

Table 1: Choose the option wisely
Annuity for lifeAnnuity for life with return of purchase price on deathAnnuity payable for life with 100% annuity payable to spouse on death of annuitantAnnuity for life with a provision for 100% of the annuity payable to the spouse of the annuitant for life on death of the annuitant, with return of purchase price on the death of last survivorAnnuity payments would be made to the annuitant and his/ her spouse throughout their lifetime. Thereafter, these pay-outs would be made to the subscriber’s mother and after her, to the father. On death of the father, the purchase price would be refunded to the annuitant’s child/ nominee.
Source: NPSTRUST.org.in

 

Which option makes sense?

This depends upon a variety of factor and the retired individual’s objective, dependents, and other personal factors. For instance, for couples with no dependents the easiest choice would be to choose option 1: Annuity for life. Here, they are likely to enjoy higher cash flows or put in lower corpus to enjoy required cash flows. The standard of living could be higher for such couples since this option pays the highest pension as compared with other plans across annuity service providers. Options #2 and #3 might suit retired couple with legal heir (children / grandchildren) where they might want to gift such corpus earned.

Option #4 & #5 could severely impact the current cash flow for the retired individual since the objective is to return the corpus. Unless there is adequate liquidity and other assets these options defeat the very purpose of buying an annuity and therefore can be avoided.

What are the Investment options available for retirement planning?


The traditional way of planning for retirement is to buy a pension product. Buying a pension product suffers from a few disadvantages. Firstly, most pension products do not take care of inflation post retirement. Secondly, its too concentrated to the avenue it invests into. Thirdly, it lacks the flexibility. A pension plan can be one of the options to plan for your retirement.

Talk to our certified “Senior financial planning advisors and Investment Advisory ”.

* – We suggest that you look at a diversified set of options to plan for your pension. You could use a set of options that are liquid, and provide stable returns even if they are lower. You could use long term avenues that deliver superior returns as well.
* – We like to use a diversified set of options including debt and equity mutual funds, pension plans, direct equity, PPF, tax free bonds, NPS, etc. One option that I would like to specifically mention is NPS since it is relatively a recent introduction. There are tax benefits when you invest into the NPS which you can take advantage of. It was tax inefficient before and this has been now addressed with withdrawals becoming tax free.
* – As you come closer to retirement, it is important to manage your asset allocation so as to provide for your monthly pension from avenues that are not market linked.
* – You also need to provide for some liquidity to take care of unforeseen expenses.
* – In summary, we suggest that you use a diversified set of options that take care of risk, return, liquidity and taxation. Further, tracking the performance of your portfolio to ensure that you achieve your pension requirement is critical.

Talk to our certified “Senior financial planning advisors and wealth managers”.

Call us +91 98453 99780

Email : contactus@righthorizons.com

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How do I retire early


Let me give you an example of myself. I had a goal of retiring from corporate life and getting into the entrepreneurship mode at the age of 35. However, I was able to do this almost 5 years earlier. I will share with you what actually helped me achieve this goal of mine.

Talk to our certified “Senior financial planning advisors and wealth managers”.

* – Firstly, you need to outline your goal clearly. Many people I know do not end up achieving their goal is because they have a moving target.
* – Secondly, you need to have a clear game plan for the same. Ideally, you should do a financial plan and then decide on a practical time frame for retiring.
* – Thirdly, be disciplined as you work towards your goal. This is actually the most boring phase and needs to be followed though over many years. Hence, tracking on how you are doing Vs your goal is an important factor towards achieving your goal.
* – You need to be able to find the right mix of aggression to be able to achieve your goal early, but also be cautious so as not to lose you returns.

Talk to our certified “Senior financial planning advisors and wealth managers”.

Call us +91 98453 99780

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