Retired professional Ranjan is keen to assess the monthly expenses he can afford, with his available corpus.

He is 60 and his wife Sundari, 59. They live in Bengaluru. He worked in a company and retired last year with accumulated retirement savings.

He is currently receiving a rent of ₹7,500 per month. He spends approximately ₹15,000 towards house maintenance and property taxes every year.

After a detailed discussion with the couple, it was understood that their expenses on an annual basis could be tagged as given in the table accompanying the article.

Applying the risk-tolerance test, the risk profile was found to be very conservative for both of them, which was on expected lines. Their prime concerns were around inflation, health risks, sustainability of the corpus for the long term and how Ranjan’s wife Sundari can manage independently in case of any unfortunate events. They were keen to opt for products that are regulated and simple to understand, with clear exit options.

Review and recommendations

·        To cater to emergency requirements, whatever was available as a surplus in different accounts was consolidated and mapped towards this critical need.

·        A fixed income portfolio that had the potential to yield between 7.5 per cent and 8 per cent interest income on an annual basis with certainty, from a corpus of ₹80 lakh, was suggested. This was constructed with the maturity proceeds from PF, commuted Super Annuation benefits and fixed deposits. This could generate an income of around ₹6.12 lakh. In addition, Super Annuation annuity payments will be received at ₹8,750 per month. This income was suggested to be used for their regular expenses.  The surplus available was to be invested as per the recommendation.

·        Their mutual funds portfolio was rebalanced to suit their risk profile. They agreed to invest 50 per cent of the annual surplus from the interest income in the same proportion. Balance amount will be invested in PPF. We advised them to continue to hold PPF and continue contribution from the surplus every year.

·        As it was expected that inflation between 5 per cent and 7 per cent per annum would eat away a portion of growth, interest income will not be sufficient to manage monthly expenses after seven years or so. To address such deficiencies, the accumulated corpus generated by MF assets would have to be consumed. Based on this, MF assets would have to be realigned with increased exposure to fixed income at that point in time to ensure predictability of monthly withdrawals. 

·        This kind of arrangement would help them manage their expenses with interest income till Ranjan reaches 75, without touching the corpus. Then, they must have not less than ₹1.5 crore as combined corpus for regular income.

·        They are not comfortable managing rental property in a location far away from their residence. They expressed interest in monetising the same at some point in the future, but not immediately. Till then, rental income will be added to fixed deposits and could be used for medical emergencies, if any. They were advised to sell rental property in the next 10-12 years and use the corpus towards regular income after Ranjan turned 75.

·        They have a health insurance policy for a sum insured of ₹3 lakh each. We advised them to opt for a super top-up insurance for sum insured of ₹20 lakh as family floater.

This is only a starting point for them on how to simply manage the expenses. There could be many surprises along the way, both positive and negative. Over the years, their expenses under some heads may reduce and increase under others. PPF corpus, along with the accumulated interest income, will be available to handle any negative surprises, as it comes with flexibility for tax-free withdrawal.

Retired life is not just about enjoying the yield of accumulated savings. Life has the knack of throwing surprises every now and then. Families should be adequately prepared to meet such challenges that are unpredictable in nature. Planning should always include addressing such eventualities. Think of how the world was made to believe, in the last decade, that low rates would be the new order… How this has changed now because of a pandemic, about which we had no clue in 2019! 

₹1.5 crore of accumulated financial assets may look sufficient looking only at the numbers…. Add a bit of emotion and uncertainty to these numbers — and their colour changes! Regular review of your financial position will help address these challenges.

The writer, Co-founder of Chamomile Investment Consultants in Chennai, is an investment advisor registered with SEBI