Retirement is the golden era of your life. You finally relax. Sit back in your rocking chair with a cup of tea. You have time for your family and most importantly, for yourself.
However, the ride through the retirement years will only be smooth if you plan for it beforehand.
Currently in India-
Planning for retirement is one of the crucial pillars of your financial journey. You spend years working hard and building wealth. That wealth should keep you afloat for the rest of your life.
So here’s how to ensure you never run out of your retirement corpus…
Emergencies never announce themselves. A sudden expense may dent your financial plan. It’s always better to be prepared for such scenarios. Build a highly liquid emergency fund that you can withdraw whenever needed.
With a 6% inflation rate, today’s INR 50,000 monthly expense would be INR 1,60,000 after 20 years. You will need more money to continue or upgrade your lifestyle after retirement. Therefore, always consider the inflation rate while planning your financial goals.
While planning retirement, keep your short, medium, and long-term goals in mind. Goals are essentially your expenses. Let’s say your monthly expenses after retirement are INR 2,00,000. To plan expenses for the next 3 years, you’ll need INR 7,200,000 kept in liquid assets for easy withdrawals. The rest of your retirement corpus can be invested as per your expenses in the next 5 to 6 years or even longer as per your financial plan.
Similar to inflation, taxes are unavoidable. You have to pay tax on gains and income generated through your investments. You can plan your investments to benefit from certain tax exemptions.
Transferring legacy to successors is still quite common in India. If you are planning to hand over your assets to your children, you may want to plan your finances accordingly. Consider your monthly expenses and the cash flow to have a comfortable life for yourself. What’s left after that can be invested in various assets for your children to inherit later.
This is the most commonly followed strategy to manage your retirement corpus. The 3 buckets represent your financial needs for a particular period. Together, these buckets keep your funds moving, thereby offering you financial freedom.
The 1st bucket, AKA Safety Bucket, contains highly liquid assets to cover living expenses for up to 3 years.
Let’s assume for the sake of example that your monthly expense after retirement would be INR 2,00,000. In that case, you can fill bucket 1 with INR 7,200,000 to comfortably cover 3 years of expenses.
Those INR 7,200,000 can be invested in high-liquidity instruments.
Debt funds offer liquidity, better yield than savings accounts, and are available in variable time horizons.
This bucket offers financial safety even during market downturns and avoids the need to sell long-term investments.
Bucket 2 is a Stability Bucket for medium-term goals. The assets in this bucket cater to 3 to 5 years of financial needs.
While you are emptying the 1st bucket, investments in bucket 2 can generate interest to refill the 1st bucket.
The second bucket aims towards income production and stability with less volatile investments.
Bucket 3 is the growth bucket for wealth creation. While the first two buckets are taking care of your expenses, the 3rd bucket can keep generating more wealth. You can keep it untouched, or use the gains/capital to refill the previous two buckets.
It all depends on how much corpus you have generated over the years and what your expenses are going to be after retirement.
There’s no one-formula-fits-all. It’ll change as per your financial requirements and goals. The idea is to keep the cash flowing through the buckets.
If you want to manage your retirement corpus, experts at VNN Wealth will help you create a personalized 3-bucket strategy. Reach out to us Via Email, WhatsApp, Instagram, Or LinkedIn.
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