Securing Your Retirement: Strategies to Prevent Early Corpus Depletion
A reader planning to retire in October 2027 has built a retirement corpus of approximately ₹1.50 crore, distributed across mutual funds, ULIPs, stocks, debt instruments, fixed deposits, and gold. However, with an outstanding home loan of ₹14 lakh to be repaid over seven years, monthly expenses of ₹90,000, and health insurance coverage of ₹18 lakh each for themselves and their spouse without term cover, concerns arise about ensuring the corpus does not run out prematurely. Retirement planning is a critical phase with minimal room for error, demanding meticulous attention to sustain financial stability post-income cessation.
Analyzing the Corpus Shortfall and Inflation Impact
Assuming a 5% inflation rate and a 10% return on investments, the current corpus falls short. With a life expectancy of 85 years, the corpus is projected to be exhausted in 18 years instead of the desired 25 years. This shortfall highlights the need for strategic adjustments to account for uncertain expenses and potential longer lifespans. Experts strongly recommend reducing post-retirement expenses by at least 20% to create a necessary buffer, ensuring the corpus can withstand financial pressures over time.
Investment Returns and Conservative Planning
The assumption of a 10% return is based on a moderate risk profile and conservative expectations, despite higher returns of around 14% in the past five years. Prudence in financial planning advises against extrapolating these past performances, especially as nominal GDP growth in India has been declining. Erring on the side of caution is essential to avoid overestimating future returns and jeopardizing retirement security.
Key Tips for a Steadier Retirement Journey
1. Enhance Health Insurance Coverage
Your current health insurance of ₹18 lakh may be insufficient, particularly for critical illnesses. Consult a financial advisor about adding top-up or super top-up insurance plans to bolster coverage. Maintaining a healthy lifestyle can also optimize retirement by reducing medical costs and improving overall well-being.
2. Optimize Savings Early On
Maximizing savings in the initial retirement years is crucial. This allows the corpus to compound more effectively, reducing financial strain in later years and extending its longevity.
3. Develop a Side Income Stream
Pursuing a side gig, such as vocational services or consultancy, can provide an additional income source. This not only helps keep you engaged but also supplements the corpus, easing the burden on your primary savings.
4. Avoid Complex and Locked-In Investments
Given your age and negligible taxation, steer clear of locked-in products, money-back insurance plans, and exotic investments. Instead, adopt a simple investment strategy including index funds, some active funds, fixed deposits, debt funds, and small allocations to bonds. This approach aims to achieve 10% post-tax returns while minimizing the risk of investment accidents.
5. Maintain Liquid Reserves
Keep 12 months of lifestyle expenses in liquid or equivalent investments. This ensures you have immediate access to funds for emergencies without disrupting your long-term investment plan.
With proper planning, caution, and effort, a smooth and sustainable retirement is achievable. Vivek Banka, a Certified Financial Planner and founder of GoalTeller, emphasizes the importance of these strategies in navigating retirement challenges effectively.
