Can we build a well-diversified retirement portfolio – a retirement basket as PV Subramanyam of subramoney.com would say? Such a portfolio should be robust enough to handle all types of expenses in retirement – everday expenses for a comfortable life, discrenationary expenses to splurge a little from time to time, emergencies, both planned and unexpected lifestyle changes etc.
This is my idea of such a robust retirement portfolio. It is not easy to build this. It will take decades and sadly those who are close to retirement may not have all the elements.
- A pension or annuity or RBI Retail Direct Bond purchase with annual interest = expenses in the first year of retirement. This is known as income flooring. You can include this as an option in the freefincal robo advisory tool.
- Remaining corpus to go into bucket strategy (which will have a cash emergency component). This is an illustration created with the robo tool. I am 30 and wish to retire by 50 how should I plan my investments?
- Dividends from a stock portfolio (see video below) for discretionary expenses
- Stock portfolio value = emergency fund or for discrenationary expenses. 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 if applicable. 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!