Want Regular Post-Retirement Income? An Expert Shares Step-By-Step Guide To Your Financial Security – News18
Last Updated:
A well-structured financial plan ensures that retirement remains a phase of comfort and security, rather than financial stress.
By diversifying across fixed deposits, mutual funds, annuities, and government-backed schemes, retirees can create a sustainable and inflation-proof paycheck.
With guaranteed pensions becoming scarce, especially for those in private sector jobs and entrepreneurial ventures, the need for a regular pay cheque in retirement has never been more critical. A well-structured financial plan ensures that retirement remains a phase of comfort and security, rather than financial stress.
Reports suggest that by 2050, men and women in India are projected to live over 75 and 80 years, respectively. This means that your plan will need to provide for old-age income and security to meet needs such as medical emergencies and higher expenses on house help etc for a good 15-20 years after you stop receiving your regular pay cheque.
Prashant Pimple, chief investment officer (fixed income) of Baroda BNP Paribas Mutual Fund, said that considering the post-retirement time period involved, this can’t be left to an ad hoc plan and instead demands a focussed approach. He breaks this down into progressive steps.
Step 1: Determining Your Regular Income Needs
Understanding and planning for recurring expenses is the foundation of a solid post-retirement income strategy. These expenses can be categorised as:
1. Essential Monthly Expenses: Groceries, utilities, transportation, healthcare, and insurance premiums.
2. Quarterly & Annual Expenses: Health check-ups, property taxes, and insurance renewals.
3. Discretionary Expenses: Hobbies, travel, entertainment, and dining out.
4. Periodic & Lump-Sum Needs: Home renovations, car replacements, family functions, or medical emergencies.
“Conventional wisdom says that you will need less money in retirement because it assumes that post-retirement you will have fewer needs. But, today’s retirees have higher aspirations and want to use the time they never had in their working years to live their dreams. Maintaining your desired lifestyle can become a breeze with smart investments that balance risk and return,” Pimple said.
Traditional Retirement Income Sources in India
He said that for investors who want to prioritise surety, a mix of annuities, combined with fixed deposits or senior citizen savings scheme can be prioritised. However, do note that this option delivers lower comparative returns and carries the risk of reinvesting matured deposits at rates that pose a material threat to preservation of the principal.
Let’s examine how you can use mutual fund schemes to create your own customised regular payout to meet your cash flow needs —
• Systematic Withdrawal Plans (SWP) can help you create your own customised pay cheque while allowing the balance of your savings to continue to earn for you.
• SWPs can be employed in debt mutual funds, arbitrage funds, multi asset and hybrid equity schemes too.
“The accumulation phase of your retirement plan is all about timing and asset allocation. The earlier you start, the greater the likelihood of reaching your goals. Longer investment horizons may also allow you to invest in options that can earn better returns such as pure equity funds,” he said.
Step 2: Optimising Retirement Withdrawals In Deaccumulation Phase
Now that you have saved up enough, it’s time to enjoy the fruits of your diligence. Knowing how best to withdraw your money is almost as important as how to invest it. Following the steps below will help you structure this effectively
Step 3: Tax-Efficient Withdrawal Approach
The following may be considered —
• Staggering withdrawals from Employee Provident Fund (EPF) and NPS might help extend tax benefits
• Structure withdrawals from tax efficient equity-oriented mutual funds efficiently to take advantage of lower capital gains tax
Secure Your Financial Future
A well-structured retirement income plan ensures financial independence and security. By diversifying across fixed deposits, mutual funds, annuities, and government-backed schemes, retirees can create a sustainable and inflation-proof paycheck, Pimple said.
