Make sure your money outlives you
During a recent visit to my hometown, Durgapur, I noticed a striking trend: many residents are retirees, while their children, well-educated and successful, have settled elsewhere. Such a scenario brings to the fore a critical aspect of retirement planning — ensuring financial independence. In this article, we'll explore strategies to achieve this goal and to avoid some common pitfalls that could leave you in a tough spot financially.
Liquidity: the lifeblood of retirement planning
Liquidity is at the heart of a successful retirement. Many retirees rely on Monthly Income Schemes (MISs) offered by banks or post offices for steady income, but these schemes might not offer the sort of growth you need to keep pace with inflation. To extend the runway of your retirement corpus, consider investing a portion of your savings into hybrid mutual funds and setting up Systematic Withdrawal Plans (SWPs) with an annual withdrawal rate of around 6-7%.
Here’s a hypothetical example to illustrate how this strategy would work. Imagine you have a corpus of ₹1 crore. By investing 50% (₹50 lakhs) in a hybrid fund that balances equity and debt, you could achieve both growth and stability.
Suppose you’d made such an allocation in 2008 and set up a monthly withdrawal of ₹25,000 (i.e. an annual withdrawal rate of 6% of the base corpus). Despite the 2008 market crash — one of the worst in history — this strategy would’ve proved resilient. By 2024, after 192 monthly withdrawals totaling ₹48 lakhs, your investment could’ve grown to around ₹94 lakhs (this is what some hybrid funds would've actually yielded over the period in question), which gives a CAGR of approximately 9% after considering the monthly withdrawals#.
This example demonstrates that with the right mix of growth and stability, your retirement fund can outlast even the most turbulent market conditions.
Beyond the financial aspects of retirement, here are three other facets that are also critically important for a smooth retirement:
Lifestyle: staying active and engaged
Retirement is a time to pursue hobbies, travel, and spend time with loved ones. Find activities that bring you joy, such as gardening, painting, or music. Travel can offer new experiences and perspectives. The key is to engage in pursuits that keep you active and give you something to look forward to.
Legacy: creating a lasting impact
Retirement is also a time to think about the legacy you want to leave behind. Estate planning allows you to distribute your assets according to your wishes. Charitable giving and setting up an inheritance plan for your family are also ways to leave a lasting impact.
Loneliness: combating social isolation
Loneliness can be a significant issue in retirement, leading to a decline in mental and physical health. Join clubs, volunteer, or engage in community activities to build social connections. Retirement communities can offer a built-in network for forming friendships.
A fulfilling retirement often involves finding a sense of purpose. Whether through volunteering, mentoring, or continued learning, retirement offers the chance to explore what brings you joy and meaning.
Ultimately, it’s all about longevity
The upshot is this: average lifespans are steadily rising, and your retirement could span decades. That’s why, in addition to remaining healthy and having strong social bonds, you also need to ensure you have a robust corpus to support the lifestyle you’re used to. Given the complexity of retirement planning, it's crucial to consult a qualified financial expert. Errors in this domain of life can have significant and irreversible consequences. Remember: the goal is to ensure your money outlives you, not the other way around.
About the author
Sudip Mandal is the Co-Head of Marketing at DSP Mutual Fund, with a strong passion for personal finance. He has a keen interest in behavioural science, which he leverages to develop innovative marketing strategies. His expertise lies in understanding investor behaviour to create impactful financial solutions.Disclaimer
In this material DSP Asset Managers Pvt. Ltd. (the AMC) has used information that is publicly available, including information developed in-house. Information gathered and used in this material is believed to be from reliable sources. While utmost care has been exercised while preparing this document, the AMC nor any person connected does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient(s) before acting on any information herein should make his/their own investigation and seek appropriate professional advice. The statements contained herein may include statements of future expectations and other forward looking statements that are based on prevailing market conditions / various other factors and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. All opinions/ figures/ charts/ graphs are as on date of publishing (or as at mentioned date) and are subject to change without notice. These figures pertain to performance of the index/Model and do not in any manner indicate the returns/performance of the Scheme. It is not possible to invest directly in an index.
#The calculation is based on past data and meant for illustration purposes only. This calculation alone is not sufficient and shouldn’t be used for the development or implementation of any investment strategy. DSP Asset Managers however does not warrant the accuracy, reasonableness and/or completeness of any such information. It is neither an investment advice nor should it be construed as indicative of any returns of the schemes of DSP Asset Managers. In view of the individual circumstances and risk profile, each investor is advised to consult their investment/tax advisor(s) before making a decision to invest. Investments made in mutual fund schemes carry high risk and there is no assurance or guarantee that the objective of the schemes will be achieved.
Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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