A few days ago I did a post saying you need Rs. 3 crores (allocated among 3 asset classes equally) – most people reacted saying ‘this is too much’.

Let us take an example. If you were to go from your house to office (a journey that you undertake every working day) and you needed Rs. 50 to do that journey, how much money would you carry?

Rs. 40?     Rs. 50?   Rs. 200?

or literally Rs. 500 + credit card + debit cards…..

good chance is it the 4th option, right? Why does this happen? Because the human mind needs to keep that ‘extra’ something – just in case something goes wrong.

If you are a student of Economics, you understand ‘motives for holding cash’ – one is precautionary motive.

So if you need about 4 L of current income during your retired life (Rs. 30k pm approx)..YOU WILL create an income of about 7-8L – just in case. In the example that I had given the person needed Rs. 4L but he had created 4L from equity, 4L from debt instruments and Rs. 4L from rent. This ensures that he does not have to worry about :

a) what if the house remains vacant for 3 months?

b) what if a big company in which I have a holding skips dividend?

c) what happens if a company in which I have a FD defaults (default means loss of income and loss of corpus also!)

So the cushion building has to be a very imp part of the portfolio management process. Do not ignore it.

For all other goals in your life, you know that if there is an over-run, you will dip into the corpus for retirement….but if you fall short of the retirement corpus, you cannot even borrow.

Erring on the side of caution is what you are taught as a CA. Life long it will remain as an imp lesson. It helps especially when conditions are so fluid all over the world.


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  1. Yes Subra.Absolutely apt advice .IN Retirement Hospitalization alone may eat a Big chunk of Corpous and Hence it may be prudent to create Hospitalisation corpous for 2 people by putting a dedicated sum in Growth Instrument.When inflation is Hovering around 10 % plus ,Medical Inflation far exceeds that .If we want Good Care for our Parents or for ourselves ,Its dam expensive .May be Prashant ,Naren will be able to give back a nice corpous with Humble contributions …So besides an Asset replacement corpous planning ,this planning is Important too…..We should ofcourse have Proper ,More than enough Medical Insurance in first place but with Medical Inflation ,NO INsurance Taken looks sufficient after say 5 years and at that age its both difficult and Very Expensive to Get Additional top up Insurance .For a couple with say Heart or Kidney ailments from 60 to 80 ,atleat 2 to 5 admissions we can see happening around and even if we take a modest 2 lacs per admission we are talking about 8lacs to 20 lacs +Maintaince cost at Todays cost. Imagine after 20 years for a couple !Hospitalisation corpous is a MUST and Necessary planning

  2. having the brains to decide whether to get an operation done is also important. These days docs do angio even for patients who are 80+. So having a good, honest doc and a good honest fund manager are both important !!

  3. After living in denial for couple of years after i took the driver seat of my personal finances, i have now come to believe what you are saying is correct.
    Aiming to generate a corpus which just about generates the future expense would be a bad idea as their will be no margin of safety.


  4. True.An increased life expectancy and the growing trend of people opting to retire early means that we earn for a short period but have to use these earnings to provide for a longer retirement period.Starting early with your investments,saving wisely and regularly is the key to building an adequate retirement corpus.

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