Retirement planning: Many people approaching retirement wonder how they can ensure a comfortable monthly income. A common goal is to earn a pension of Rs 1 lakh per month. This article explores how senior citizens with different risk appetites can achieve this target.
The Investment Corpus Needed
To generate a monthly pension of Rs 1 lakh, senior citizens typically need an investment corpus of Rs 1.2 crore to Rs 1.5 crore. This estimate assumes an expected return rate of 8-10%. The exact amount needed depends on the individual’s risk tolerance and investment choices.
Investment Strategies Based on Risk Appetite
1. Conservative Investor’s Approach
Conservative investors prefer safer options with stable returns. Here’s a strategy for them:
- Fixed Deposits (FDs): Invest Rs 25 lakh in various FDs, aiming for a 7.5% return. This can provide about Rs 15,625 monthly.
- Senior Citizen Savings Scheme (SCSS): Put Rs 30 lakh in SCSS, which offers an 8.2% interest rate, yielding Rs 20,500 per month.
- RBI Floating Rate Savings Bonds: Invest Rs 35 lakh for a monthly equivalent of Rs 23,479.
- Debt-oriented Mutual Funds: Invest Rs 30 lakh and start a Systematic Withdrawal Plan (SWP), potentially earning Rs 16,865 monthly.
- Balanced Hybrid Mutual Funds: Another Rs 30 lakh here could provide Rs 23,732 monthly.
Total investment: Rs 1.45 crore
Estimated monthly pension: Rs 1,00,201
2. Moderate Investor’s Strategy
Moderate risk-takers can consider a mix of debt and equity investments:
- Fixed Deposits: Rs 10 lakh for a monthly income of Rs 6,250.
- Senior Citizen Savings Scheme: Rs 30 lakh, yielding Rs 20,500 per month.
- RBI Floating Rate Savings Bonds: Rs 35 lakh, providing Rs 23,479 monthly.
- Balanced Hybrid Mutual Funds: Rs 35 lakh in an SWP, potentially earning Rs 23,732 monthly.
- Large-cap Equity Mutual Funds: Rs 30 lakh in an SWP, aiming for Rs 28,198 per month.
Total investment: Rs 1.35 crore
Estimated monthly pension: Rs 1,02,159
3. Aggressive Investor’s Plan
Those comfortable with higher risk for potentially greater returns might consider:
- Senior Citizen FDs: Rs 10 lakh for Rs 6,250 monthly.
- Senior Citizen Savings Scheme: Rs 30 lakh, providing Rs 20,500 per month.
- Equity-oriented Hybrid Mutual Funds: Rs 30 lakh in an SWP, aiming for Rs 23,732 monthly.
- Aggressive Hybrid or Large-cap Mutual Funds: Rs 55 lakh in an SWP, potentially earning Rs 51,696 per month.
Total investment: Rs 1.25 crore
Estimated monthly pension: Rs 1,02,178
Key Considerations for Senior Citizens
When investing for regular income, senior citizens should keep these factors in mind:
1. Liquidity: Choose investments that allow easy access to funds in emergencies.
2. Stability: Aim for stable income that can last a lifetime. Regular reviews and adjustments may be necessary to keep up with inflation.
3. Safety: Diversify investments across different asset classes to protect capital.
4. Returns: Consider post-tax returns and the impact of inflation on purchasing power.
5. Tax Efficiency: Be aware of the tax implications of different investment options.
6. Diversification: Spread investments across various instruments to manage risk.
7. Regular Guidance: Seek professional advice for careful management of your portfolio.
8. Nomination and Succession Planning: Ensure proper documentation for smooth transfer of assets to beneficiaries.
Balancing Debt and Equity
For those in their 60s or 65s with a 25-30 year horizon, a general recommendation is to have about 60-65% of the portfolio in debt instruments. This ensures a steady pension flow. The remaining can be allocated to equity funds, with a focus on large-cap funds for growth potential.
This balanced approach allows for both regular income and the opportunity for capital appreciation to counter inflation over time.
Conclusion
Achieving a monthly pension of Rs 1 lakh requires careful planning and a good understanding of various investment options. By considering your risk tolerance, diversifying investments, and regularly reviewing your portfolio, you can work towards a comfortable retirement income. Remember to consult with financial advisors to create a personalized plan that suits your specific needs and circumstances.