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57-year-old retiring with 1 crore: How to generate 60-70K monthly income?

Ramalingam Kalirajan |7462 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jul 16, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Jul 08, 2024Hindi

I am 57 year old and approaching my retirement. When i retire at the age of 58, i will be having a capital of 1 crore from all my current investments. I have only my wife as dependant and no other financial commitments. From the age of 59, i want to get a regular monthly income of 60K to 70K from 1 crore capital. I want to split my capital into 3 baskets. One part to FD, another part to low risk MF's and other part to high risk Equity MF's. Suggest me a right mix of investment or how to invest, so that i want my capital to appreciate over a period of time. Thanks in advance.

Ans: First of all, congratulations on approaching retirement with a substantial capital of Rs. 1 crore. It's commendable that you have planned well for your future. Let's create a comprehensive plan to ensure you get a regular monthly income while growing your capital.

Monthly Income Requirement
You aim to get a regular monthly income of Rs. 60,000 to Rs. 70,000 from your Rs. 1 crore capital. This requires a careful mix of investments to balance growth and stability.

Investment Baskets
You mentioned splitting your capital into three baskets:

Fixed Deposits (FD)
Low-risk Mutual Funds
High-risk Equity Mutual Funds
Fixed Deposits (FD)
Fixed Deposits provide stability and guaranteed returns. However, the returns are often lower than other investment options. Allocating a portion of your capital to FDs ensures you have a safe and steady income.

Advantages:

Guaranteed returns
Low risk
Easy to manage
Disadvantages:

Lower returns compared to other investments
Interest income is taxable
Recommendation:

Allocate 30% of your capital (Rs. 30 lakh) to Fixed Deposits. This ensures a stable income with minimal risk. Interest rates on FDs vary, but currently, they offer around 5-6% per annum. This allocation will generate Rs. 1.5 lakh to Rs. 1.8 lakh annually, which translates to Rs. 12,500 to Rs. 15,000 monthly.

Low-risk Mutual Funds
Low-risk mutual funds, such as debt funds, offer better returns than FDs with relatively low risk. These funds invest in bonds and other debt instruments.

Advantages:

Higher returns than FDs
Tax-efficient if held for over three years
Disadvantages:

Slightly higher risk than FDs
Returns are not guaranteed
Recommendation:

Allocate 40% of your capital (Rs. 40 lakh) to low-risk mutual funds. These funds typically offer returns of 7-8% per annum. This allocation will generate Rs. 2.8 lakh to Rs. 3.2 lakh annually, which translates to Rs. 23,333 to Rs. 26,667 monthly.

High-risk Equity Mutual Funds
Equity mutual funds offer the highest potential returns but come with higher risk. These funds invest in stocks and have the potential for significant capital appreciation over the long term.

Advantages:

High potential returns
Good for long-term growth
Disadvantages:

High risk
Returns are market-dependent
Recommendation:

Allocate 30% of your capital (Rs. 30 lakh) to high-risk equity mutual funds. These funds can offer returns of 12-15% per annum over the long term. This allocation will generate Rs. 3.6 lakh to Rs. 4.5 lakh annually, which translates to Rs. 30,000 to Rs. 37,500 monthly.

Combining the Baskets
Let's combine the income from all three baskets to meet your monthly income requirement:

Fixed Deposits (FD): Rs. 12,500 to Rs. 15,000 monthly
Low-risk Mutual Funds: Rs. 23,333 to Rs. 26,667 monthly
High-risk Equity Mutual Funds: Rs. 30,000 to Rs. 37,500 monthly
Total monthly income: Rs. 65,833 to Rs. 79,167

This combination meets your goal of Rs. 60,000 to Rs. 70,000 monthly income. Additionally, the equity mutual funds will help your capital appreciate over time.

Adjusting for Inflation
Inflation can erode the purchasing power of your money. It's important to review and adjust your investment portfolio periodically to ensure your income keeps pace with inflation.

Review and Rebalance:

Review your portfolio annually.
Rebalance the allocation if needed.
Shift some funds from high-performing equity funds to FDs or low-risk funds as you age.
Tax Efficiency
Consider the tax implications of your investments. Interest from FDs is fully taxable, while gains from mutual funds are taxed differently.

Tax on FDs:

Interest is added to your income and taxed at your slab rate.
Tax on Debt Funds:

Short-term capital gains (holding period less than 3 years) are taxed at your slab rate.
Long-term capital gains (holding period more than 3 years) are taxed at 20% with indexation benefits.
Tax on Equity Funds:

Short-term capital gains (holding period less than 1 year) are taxed at 15%.
Long-term capital gains (holding period more than 1 year) are taxed at 10% beyond Rs. 1 lakh exemption.
Contingency Planning
Ensure you have a contingency plan for unexpected expenses. Keep a part of your investments easily accessible for emergencies.

Emergency Fund:

Maintain an emergency fund of 6-12 months of your monthly expenses.
Keep this fund in a savings account or a liquid mutual fund for easy access.
Health and Life Insurance
Ensure you have adequate health and life insurance coverage to protect against unforeseen medical expenses and to provide for your dependents.

Health Insurance:

Opt for a comprehensive health insurance policy.
Consider a top-up plan if you already have a base policy.
Life Insurance:

If you don't have a life insurance policy, consider a term plan.
Ensure the coverage is sufficient to provide for your spouse in your absence.
Final Insights
Your current capital and planned investments are well thought out. By following this diversified approach, you can achieve a steady monthly income while growing your capital.

Remember to review your investments annually and adjust as needed. This will help you stay on track with your financial goals and adapt to any changes in your financial situation or the market.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.