A reader asks, “I am 38 years old, currently have a corpus of 2.25 Cr. 70% is in debt { SCSS (30), EPF (25), PPF (25), Arbitrage Funds (70), Debt MF (rest) } and 30% in equity MF. I invested in arbitrage funds as they provide good returns (vs FD) and a means to balance my portfolio easily”.
“Is the corpus enough to retire? What would be the bucket strategy you would suggest with the below assumptions?”
- Monthly expenses (40k) + 1 lacs annual expenses
- Not married, so the corpus should last till I am 85
- Already have health insurance of 10 lacs + super top-up of 50 lacs
- Emergency corpus of 12X Monthly expenses already saved separately
- I have my own house. My parents are not dependent on me
- I plan to do odd jobs till I am 60 to manage any other expenses.
- I have a high-risk appetite, so I’m not looking at annuity options.
The reader also shared his investment journey briefly. This will be published in a subsequent article. We shall enter his numbers into the freefincal robo-advisory tool and see what comes out.
The short answer is yes, you can afford to retire with 2.25 Crores, but there are many uncertainties involved as the retirement tenure is so large. So we strongly recommend that you continue to work on something you love and manage your expenses. This will allow your corpus to grow untouched and reduce the risk of outliving it.
If readers are surprised by this answer, then we suggest reading this: Retire early to lower your retirement corpus! The earlier the retirement, the lower the corpus required!
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The robo tool divides the retirement corpus into five buckets. That is, the retirement corpus will be divided into five parts. This is only one of many ways to construct a bucket strategy. The idea here is to minimise active management and shift funds from one bucket to another unless necessary. The following assumes 52 years in retirement (until age 90). The percentages are specific to the set of inputs and should not be used by everyone.
- An emergency bucket to handle unexpected expenses. Example: 5%. This is already separately available.
- Total equity allocation: 35% (excluding the emergency bucket). Please note that early retirement does not mean more equity allocation! That will be too risky. Since the reader does not want to work regularly, we must be conservative.
- An Income bucket (46%) for guaranteed income for the first 15 years of retirement. During this time, investments are made in the following three buckets.
- Corpus is from a low-risk bucket (30%) that provides retirement income from year 16 to year 28. To provide this income, the low-risk bucket will have an asset allocation of 50% equity and 50% debt during the investment period (years 1 to 15 of retirement).
- Corpus from a medium-risk bucket (14%) will provide retirement income from years 29 to 38. To provide this income, this bucket shall have an asset allocation of 70% equity and 30% debt during the investment period (year 1 to year 28).
- Corpus from a high-risk bucket (10%) will provide retirement income from years 39 to 52. To provide this income, this bucket shall have an asset allocation of 100% equity and 0% debt during the investment period (year 1 to year 38).
- After 15 years, the low-risk bucket will be turned into 100% debt and provide income for about 13 years. After that, the other buckets will also be progressively used. One can always customize this usage after retirement.