Pagal World
Creating a corpus for retirement is just the first step. The harder part is ensuring that the money lasts long enough.
The trick is to ensure that there is a monthly income stream, while at the same time not withdrawing from your savings too rapidly. This can be done using an appropriate strategy wherein you earn from your money while ensuring that a portion of your corpus keeps growing.
Here are some ways in which you can go about doing it.
1. Follow a safe withdrawal rate
Financial experts advise individuals to withdraw just a small amount of their corpus every year instead of withdrawing a lot of funds when needed.
If your corpus is ₹1 crore, for instance, withdrawing 4% a year means you would be withdrawing ₹4 lakh in a year, or around ₹33,000 a month, which allows the rest of your portfolio to earn and sustain your future withdrawals. The perfect withdrawal rate depends on some variables such as your retirement age, returns from investments, the rate of inflation, and many others.
2. Make money from investments
Your investments could also help you earn steady income. You can earn money regularly without liquidating your investments through dividend-paying stocks, debt investments, and REITs. This reduces the need to tap into the corpus to meet your monthly requirements.
3. Consider a Systematic Withdrawal Plan
In case you have made investments in mutual funds, the Systematic Withdrawal Plan (SWP) will help you earn a fixed amount every month. With the help of an SWP plan, the set amount gets transferred to your bank account periodically, whereas the rest of the amount continues to get invested. Prior to opting for a withdrawal sum, you can make use of an SWP calculator to know the effects of different withdrawal sums on your corpus.
4. Divide your corpus into different buckets
Do not keep all your corpus in one place. Rather, divide your corpus according to its usage period.
Short term bucket: Keep one-two years’ expenses in cash or liquid investment forms.
Medium term bucket: Invest the money needed in the coming years in relatively stable debt investments.
Long-term bucket: Keep the rest of the corpus in growth-oriented investments such as equity mutual funds to take care of the effects of inflation.
This way, you can avoid having to sell your long-term investments during a downturn in the market.
5. Review your income every year
Your retirement plan is not supposed to stay static forever.
Medical bills can get higher. The cost of living can rise owing to inflation. Your lifestyle itself might be changing over the years.
Review your withdrawals yearly, but make any changes only if there is an absolute need for them. Planned and gradual withdrawals are always better than those which are unplanned.
The bottom line
Your corpus is not just a nest egg. It is the foundation for your future income stream. Your aim shouldn’t be to refrain from drawing down on your corpus. Instead, your goal should be to manage it well.
A proper budget plan, effective withdrawal plan, and periodic evaluation can help you make your corpus last longer. In case you want to withdraw via mutual funds, an SWP calculator can assist you in determining a safe monthly income stream even before you start.
Little planning today can go a long way to ensuring that your money keeps supporting the life you have built for yourself so far.
