Will 1 lakh per month be enough in 10 years?

1 lakh per month may not be sufficient in 10 years from now, could you also suggest any instrument that will help me grow this annuity? So that I am financially stable for howmanyever years I live.

Ans: Hello;

That is exactly the reason why I advised you to retain PPF and NPS accounts till 50 & 60 years of age which you may utilise to top-up your annuity corpus at appropriate stages.

This is a relatively safe option.

Other option is to put entire corpus in a conservative hybrid debt type mutual fund and do a SWP at max 3%.

If you increase SWP rate you run the risk of eating into your corpus during unforeseen drawdowns, declining interest rates and sideways market movements.

3% SWP on a 3 Cr corpus may yield you monthly income of around 65 K post-tax.

So the fund has to generate 8% minimum returns to ensure purchasing power of your corpus, which cannot be assured.

Best wishes;

Ans: At 60 years old, and as a self-dependent bachelor without the need to leave a legacy, you have the flexibility to prioritize investments that will generate steady periodic income for you. With Rs. 6.5 lakhs available for lump sum investment, you can select from several options that suit your needs—be it monthly, quarterly, or annual income.

Since your survival commitments are covered by other income sources, you can focus on supplementing your finances with reliable income streams, ensuring stability without taking excessive risks. Let’s explore the most appropriate choices and help you identify the right mix of investments.

Investment Options for Periodical Income
The goal is to ensure that your Rs. 6.5 lakh corpus works for you, providing regular payouts and safeguarding your capital at the same time. Below are six possible options that you can explore.

1. Systematic Withdrawal Plan (SWP) in Mutual Funds
One of the most popular strategies for retirees is investing in mutual funds with a Systematic Withdrawal Plan (SWP). In this method, you invest your lump sum into a mutual fund and regularly withdraw a pre-determined amount (monthly, quarterly, etc.) based on your needs.

An SWP allows you to earn a periodic income without fully liquidating your investments. You still hold the mutual fund units, which have the potential for appreciation over time.

Benefits of SWP:

Flexibility to choose withdrawal amount and frequency.
You retain ownership of your investment, allowing capital to potentially grow.
It offers better tax efficiency compared to fixed deposits as only the capital gains portion of the withdrawal is taxed, not the principal.
SWP is especially useful for drawing a steady income while keeping your capital intact in the long term.
Types of Funds to Consider:

Balanced Hybrid Funds: A combination of equity and debt funds, offering moderate returns with lower risk.
Debt Funds: For those looking for more stability, debt funds provide reliable returns with lesser market volatility.
An SWP gives you flexibility while generating regular income. If managed correctly, it ensures that your principal stays intact, and you can earn a stable 6-8% return annually, depending on the type of fund and market conditions.

2. Senior Citizens’ Savings Scheme (SCSS)
A highly reliable and secure government-backed scheme, the Senior Citizens’ Savings Scheme (SCSS) is specially designed for people aged 60 and above. It’s a suitable option for retirees looking for a guaranteed income stream with minimal risk.

Key Features:

Interest Rate: Offers a fixed interest rate of approximately 8.2% (subject to quarterly revisions by the government).
Tenure: It has a maturity period of 5 years, which can be extended by 3 years.
Income Payout Frequency: Interest is paid quarterly, ensuring regular income.
Investment Limit: You can invest up to Rs. 15 lakhs in SCSS, but your Rs. 6.5 lakh corpus can still earn a substantial income.
SCSS is a safe, low-risk option that gives retirees a steady quarterly income. Its higher interest rate, compared to regular savings accounts and fixed deposits, makes it an attractive option. The principal is secure, and the interest payouts are regular, making it ideal for retirees looking for safety and stability.

3. Post Office Monthly Income Scheme (POMIS)
For a monthly payout option, the Post Office Monthly Income Scheme (POMIS) is another solid, low-risk option backed by the Government of India. This scheme is designed to provide a fixed monthly income, and is highly suitable for retirees like you.

Key Features:

Interest Rate: Currently offering around 7.4% interest annually, but payouts are made monthly.
Tenure: It has a fixed tenure of 5 years.
Investment Limit: Rs. 4.5 lakhs for individuals and Rs. 9 lakhs for joint accounts.
Payout Frequency: As the name suggests, you will receive income every month.
While POMIS doesn’t offer any capital appreciation, it is a safe and guaranteed source of monthly income. It is a popular choice among those seeking risk-free income options.

4. Fixed Deposits (FDs) with Regular Payouts
Bank Fixed Deposits (FDs) are a familiar option to many, offering assured returns over a fixed tenure. For senior citizens, most banks offer an additional 0.50% interest over the regular rates, making FDs slightly more lucrative.

Key Features:

Interest Rate: Senior citizens generally receive between 6-7% interest, depending on the bank.
Payout Frequency: FDs allow you to opt for monthly, quarterly, half-yearly, or annual interest payouts.
Tenure: You can choose the FD tenure based on your needs, ranging from 1 year to 10 years.
Though FDs offer predictable and safe returns, they don’t provide any capital appreciation, unlike mutual funds. Moreover, premature withdrawal from FDs may incur penalties, and the returns are fully taxable.

For someone looking for steady income without the volatility of the stock market, FDs remain a viable option. However, the interest rates are generally lower than those provided by government-backed schemes like SCSS and POMIS.

5. Immediate Annuity Plan
An Immediate Annuity Plan provides a guaranteed income for life or for a specified period, depending on the plan you choose. Once you invest your lump sum, the insurance company will start paying you immediately.

Key Features:

Guaranteed Lifetime Income: The annuity provides fixed payouts for life, ensuring you don’t outlive your savings.
Immediate Payout: You start receiving income shortly after making the investment.
Risk-Free: The payout is guaranteed, so you don’t need to worry about market volatility or fluctuations.
However, once invested in an annuity plan, your money is locked up, and you lose access to your capital. Additionally, annuity returns are typically lower, around 5-6%, and lack flexibility compared to SWPs or other investment options.

6. Corporate Bonds and Debentures
If you are comfortable with a slightly higher risk than FDs or SCSS, Corporate Bonds and Debentures can provide better returns while offering fixed, periodic payouts.

Key Features:

Interest Rate: High-rated bonds typically offer returns of around 7-9%.
Payout Frequency: You can choose bonds with monthly, quarterly, or annual interest payouts.
Risk: Corporate bonds carry more risk than government-backed schemes, as they depend on the financial health of the issuing company. However, selecting bonds with a high credit rating (AA and above) can reduce this risk.
Corporate bonds are an option for those who want higher returns without taking on too much risk. However, unlike government-backed options, they do come with some level of default risk, albeit minimal if you stick to top-rated bonds.

Suggested Investment Strategy
Given that you have Rs. 6.5 lakhs available, you should diversify your investments to balance risk, income, and capital growth. Here’s a suggested plan:

Systematic Withdrawal Plan (SWP): Invest Rs. 2.5 lakhs in a balanced or debt mutual fund. You can withdraw a fixed amount monthly or quarterly while your capital has the potential to appreciate over time.

Senior Citizens’ Savings Scheme (SCSS): Invest Rs. 2 lakhs in SCSS for quarterly interest payouts at a relatively high interest rate.

Post Office Monthly Income Scheme (POMIS): Invest Rs. 1.5 lakhs for assured monthly income with no risk to your capital.

Corporate Bonds or FDs: You can invest Rs. 50,000 in high-rated corporate bonds or a senior citizen FD for further income and liquidity.

This diversified approach ensures you get regular income through low-risk options like SCSS and POMIS, with the potential for growth through SWPs.

Finally
At your stage in life, it's important to prioritize stability and assured income. You have a variety of investment options, from SWPs and SCSS to annuities, all of which can help you maintain financial independence. Avoid locking all your capital into one option, as flexibility is key in case your needs or financial situation change.

By spreading your investments across secure and income-generating schemes, you can enjoy regular income while keeping some room for potential growth.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

Will 1 lakh per month be enough in 10 years? | Reader Q&A

1 lakh per month may not be sufficient in 10 years from now, could you also suggest any instrument that will help me grow this annuity? So that I am financially stable for howmanyever years I live.