How to Ensure You Never Run Out Of Money After Retirement

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-

  • Only 10% of the 60+ population is earning from the pension or the rent,
  • About 60% of men and 25% of women above 60 are still working,
  • And 60% of the people above the age of 70 are dependants.  

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…

5 Things to Consider While Planning For Retirement

1. Emergency Fund

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.

2. Inflation

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.

3. Cash Flow

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. 

4. Taxation

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. 

5. Legacy

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. 

The 3-Bucket Strategy For Effective Retirement Planning

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.

Bucket #1: Short-Term Financial Goals (1 to 3 Years)

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. 

  • The most common liquid and safe instruments are Fixed Deposits, Certificates of Deposits, or Liquid Funds. 
  • Money Market mutual funds can also be included in this bucket. These funds invest in highly liquid assets.
  • While many prefer keeping funds in savings accounts for emergencies, you can also consider short-term debt funds. 

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: Medium-Term Financial Goals (3 to 6 years)

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. 

  • Fill the second bucket with Corporate Fixed Deposits, Hybrid Mutual Funds, and Senior Citizen Saving Funds.
  • Corporate FDs are slightly riskier than bank FDs but offer superior interest rates. That extra 1 to 2% can make a huge difference.
  • Hybrid Mutual Funds invest in equity, debt, and gold. For example- Balanced Advantage Funds, Multi Asset Funds. These funds are less riskier than pure equity funds and are suitable for intermediate financial goals. 
  • Senior Citizen Savings Scheme can also be a part of a medium-term financial plan. Retirees can invest INR 1,50,000 in a financial year to get an exemption on tax under section 80C of the IT Act. 

The second bucket aims towards income production and stability with less volatile investments. 

Bucket #3: Long-Term Financial Goals (7+ Years)

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. 

Final Thoughts: How to Divide Your Retirement Corpus Into 3 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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