PremiumIf your portfolio return is less than or equal to the inflation, then your savings will deplete midway through your retirement. However, if you can beat inflation by 1%, you can stretch your timeline by another 7 years.
I am 46 years old and want to retire immediately. I have saved ₹4 crore, of which ₹2.5 crore is in equity funds and ₹1.5 crore is in debt instruments. In debt, I have ₹75 lakh in PPF and EPF, ₹10 lakh in Bharat bond ETF – April 2023, ₹15 lakh in bank fixed deposits, and ₹50 lakh in liquid funds. My monthly outflow is ₹1.25 lakh. Will this corpus be enough? I have kept aside some emergency funds and have health insurance too.
—Name withheld on request
With an annual spend of ₹15 lakh (in today’s money) and a corpus of ₹4 crore, you will have to plan carefully to ensure that your savings last.
If your portfolio return is less than or equal to the inflation, then your savings will deplete midway through your retirement. However, if you can beat inflation by 1%, you can stretch your timeline by another 7 years. The more your portfolio can beat inflation, the longer you can stretch your corpus.
You can take a ‘bucket approach’—dividing your corpus into two buckets: the first one taking care of expenses for the next 3-5 years, and the second one for long-term investing. You can bifurcate your risk-capacity into two parts— the immediate corpus taking very little risk and the longer-term corpus taking more risk so that it would have a higher chance of beating inflation.
For example, you can invest ₹50 lakh (equivalent to 3 years’ expenses) in low-risk instruments such as bank FDs. The remaining ₹3.5 crore can be invested for inflation-beating returns—a 70:30 equity to debt allocation. Every year, you can shift one more year’s expense from the high-risk to low-risk bucket. Over time, the higher risk portfolio will, hopefully, beat inflation and keep supplying the expense bucket.
Srikanth Meenakshi is co-founder at PrimeInvestor.