Hi, I am 46. I would like to retire in the next 3 years. My current corpus is broken up as ; a. 4.8 cr in equity b. 2 cr in MF c. 1.6 cr in EPF d .8 cr in real estate e .8 cr in FD f .3 cr in jewelry. in scenario 1; my month essential expenses annualized are approx 30 lakhs and discretionary annulized expenses are 10 lakhs...in scenario 2, my essential exp are 22 lakhs and discr exp annualized at 8 lakhs. Can you help me understand what is the corpus i need on reaching which i can manage the current expenses comfortably in both scenarios. and what should the ideal swp % be in both scenarios. Thanks.
Ans: Planning for Retirement: Understanding Corpus Requirements and SWP Strategy
Congratulations on contemplating retirement! Let's delve into analyzing your current corpus and determining the ideal corpus required to comfortably manage your expenses in both scenarios, along with suggesting suitable SWP percentages.
Assessing Current Corpus Allocation
Diversified Portfolio
Your current corpus is well-diversified across various asset classes, including equity, mutual funds, EPF, real estate, FDs, and jewelry.
Analysis of Scenarios
In Scenario 1, your essential expenses are higher at 30 lakhs annually, with discretionary expenses amounting to 10 lakhs annually. In Scenario 2, essential expenses decrease to 22 lakhs annually, with discretionary expenses reduced to 8 lakhs annually.
Calculating Required Corpus
Essential Expenses Coverage
To comfortably cover essential expenses in Scenario 1, you require a corpus that can generate an annual income of 30 lakhs. Similarly, for Scenario 2, a corpus generating 22 lakhs annually is needed.
Discretionary Expenses Coverage
For discretionary expenses in Scenario 1, a corpus generating an additional 10 lakhs annually is required. In Scenario 2, this reduces to 8 lakhs annually.
Determining Ideal SWP Percentage
SWP Strategy
Systematic Withdrawal Plans (SWPs) allow you to withdraw a fixed amount regularly from your investment corpus. The SWP percentage depends on various factors such as expected returns, inflation, and investment duration.
Considerations for SWP Percentage
Expected Returns: Higher expected returns may allow for a lower SWP percentage, while lower returns necessitate a higher SWP percentage to meet expenses.
Inflation: Consider the impact of inflation on your expenses and adjust the SWP percentage accordingly to ensure sustained purchasing power.
Final Recommendations
Required Corpus
Based on your essential and discretionary expense calculations, you require a corpus that generates 30 lakhs annually for Scenario 1 and 22 lakhs annually for Scenario 2.
SWP Percentage
The ideal SWP percentage will vary based on factors such as expected returns, inflation, and investment duration. A conservative estimate would be to target an SWP percentage that ensures the preservation of your corpus while meeting your annual expense requirements.
Conclusion
By analyzing your current corpus, understanding your expense scenarios, and considering SWP strategies, you can effectively plan for retirement and ensure financial security in your post-retirement years. It's advisable to consult with a Certified Financial Planner (CFP) to tailor a retirement plan that aligns with your goals and financial objectives.
Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in