Subra I recently attended your Retirement Planning seminar in our office, and came away impressed. I am 54 years of age and have about Rs. 1 crore in bonds and about Rs. 10 lakhs in equities. I hope to have about Rs. 2.5 crores at age 60, please tell me how to reconcile between safety and return while in retirement. My wife is about 8 years younger to me, and hopefully my children will be settled, and we will have a debt free house apart from this Rs. 2.5 crores. Thanks.

As this was a very generic query and with reasonable amounts I decided to do a public post. Names of course do not matter, right?

Answer: Mr. MK thanks for writing in. Let us take the first step. Your bonds, bank fixed deposits, and bond funds are all giving you a NEGATIVE sub optimal post tax return. I see no reason why you are in the dividend option for  your bond funds. This change itself will improve your post tax IRR. I am assuming that since you can easily live on your salary you should shift to a bond fund ONLY portfolio and all of them should be in the GROWTH option. This will improve your average CAGR to about 8% and going down, but as the withdrawal will happen only after 10 years, your post tax return will remain more or less at 8%.

Check out your real risk tolerance. On a portfolio with 80% equity and 20% debt, you will have to really worry about Black Monday, the 2007 kind of a fall in equities, etc. So see how you will react to a 20% IN ONE DAY Kinda fall – for example if you have 80:20 favoring equities, your overall portfolio will fall by 16% – this does not look like much but in a Rs. 2.5 crore portfolio it means a fall of Rs. 40 lakh fall. THIS IS NOT EASY FOR most of us to take.

So if your comfort level is say 30% equity and 70% debt, stick to that. However be in growth option in both equities and debt funds. As you will have a pension of  Rs. 39,000 to start with I am assuming you will have scope for 80C investments. Put this in the ELSS scheme so that Rs. 1.5L per year goes into equity. Of course this will increase your equity exposure, but as a SIP you are more happy about volatility, so enjoy the same.

By the time you are 70 years old your ratios would have changed a little bit – assuming a bull run for equities – and an uninterrupted CAGR of say 13%p.a. At this stage you could shift to a 10% equity (yes Nifty index fund, you guessed it right). and thus to a 90% in bond funds and annuities.

Buy annuities (where else LIC) in about 3/4 installments. So buy a Rs. 10L annuity when you are 60 years of age, one when you are 65 and one when you are 72. Staggering will allow you to get a better pension instead of a one time pension.

Your second house from where your wife is getting rent should also be sold off when she is 65 and converted to liquid assets (financial assets) and converted to an annuity after the tax lock in is over.

Call me for more clarification..s…

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  1. Subra,

    Having 2.5 crore in bank, 39K in pension and 2 houses in your name with all the children settled is a no-brainer to solve and is a good headache to have.

    I have no clue why you call this as typical. If this is typical, then we don’t have a retirement problem to worry about.

  2. I am on my way to achieve this. Have started SIP’s by constantly reading your site. Still need your inputs sir.
    Do respond on FB or on comment as I need further advice

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