Last Updated on February 12, 2022 at 6:15 pm
The notion of retirement has changed considerably over the years. Retirement for our parents meant a complete dependence on salary up to retirement and then complete dependence on pension afterwards. If we build a well-diversified retirement portfolio – a retirement basket as PV Subramanyam of subramoney.com would say – we can approach retirement with confidence and focus on spending time productively.
The picture below is a simplistic depiction of old retirement vs new retirement. The fall in the dependence on salary simply refers to the growth of retirement income sources. Regular readers may be aware of this technique to evaluate a retirement portfolio – Review Your Financial Freedom Portfolio in Seven Easy Steps.
Every year we ask, “if I were to stop earning today*, how long will my investments be able to generate an income that keeps pace with inflation and also handle emergencies”. I started investing in NPS (2006) and equity MFs (2008). If I had checked the answer to this question in say 2010, it would be “0.5 years” or something of that order.
NB: * “stop earning today” is with respect to cash flow only. Retirement does not mean I sit with a coffee in one hand and phone in another speaking to “Ramamurthy Avre” We can work as long as we can, but can neither assume nor depend on that!
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
This means if I had quit working in 2010, my corpus would have lasted six months! That may not sound like much but it is a start and a start in the right direction. Cut to 2020, this number is about 43 years. So the dependence on my salary is significantly lower if not zero. This journey from under a year to something sizeable is depicted by the fall in the red line.
The primary way to beat inflation after retirement is to invest with the right asset allocation of say, equity and debt, change this equity allocation, use a bucket strategy, account for pension or rental income etc as implemented in the robo advisory template.
There is always some risk in actively managing this portfolio post-retirement or some risk that we would not be able to invest enough and/or achieve the corpus we desire. Therefore, it would be best to bolster the primary approach in additional ways.
Building the ideal retirement portfolio
Each of us has to ask what would the ideal retirement portfolio for each of us. Let go over mine as an example.
- 40% mandatory NPS annuity pension payout = expenses in the first year of retirement
- Corpus from MFs + 60% NPS corpus + PPFto go into bucket strategy (which will have a cash emergency component)
- dividends from a stock portfolio (see video below) for discretionary expenses
- stock portfolio value = emergency fund (don’t be surprised that six-month emergency fund in sb account is for those starting out. Rich people sell stocks)
- passive income. See these resources for details
- Active income from freelancing at will. More than the income it is for spending time productively and not worry if my son packed his lunch to work.
- Rental income ==> This is not applicable to me but maybe for many of you. Please do not buy real estate for rental income or as an investment if you cannot invest enough for retirement.
If we build a retirement basket with multiple income streams, we lower sequence of returns risk and the risk of emergencies – especially ones with recurring expenses. With luck, we might even leave a legacy behind.
Start thinking about alternative income streams. Those who cannot invest more have only one choice – manage their time better and find ways to turn their skills into income!
Also see: Retirement Stock Portfolio Analysis: September 2021
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)