Your Money: Steps to reach your retirement corpus milestone

An efficient portfolio can cater to multiple lifecycle goals with a continual flow of capital, in and out of it

By Vishal Vij

Retirement planning is all about getting an insight into the ‘future you’ based on your present aspirations, desires and wants. Estimating your post-retirement activities will put a lot more meaning to your retirement plan. For example, you may want to travel a lot more, get involved in some philanthropic activity, or want to ensure a buffer for emergencies. It would be best if you were driven by your post-retirement goals, quantify the expense to an approximate number as per present value and inflate the expenses to your retirement age.

Someone needing Rs 2 lakh a month as per present value may need to plan for `5.3 lakh a month after 20 years at a 5% inflation rate. With an estimated 35 years of life expectancy, the corpus needed would be Rs 13.7 crore with a 3% (investment return – inflation) real rate of return on the post-retirement corpus. If you are not putting the pillars in place for this goal, then it poses a massive risk to maintaining your current lifestyle post-retirement.

Efficient retirement plan
In order to prepare an efficient retirement plan, it is essential to have an optimum pre and post-retirement portfolio composition to reach closer to your retirement corpus milestone and efficiently monetise the withdrawals later. Someone having more years to retirement can afford to take much higher exposure to risk assets versus someone retiring in a couple of years. Imagine everything left to risk assets for “long term” without portfolio rebalancing and in the year of retirement, the market crashes by 30%.

That takes away almost one-third of your portfolio during that phase when you were to initiate withdrawals from the corpus. Following an asset allocation plan of diversely correlated funds and rebalancing at regular intervals reduces such risks. Historically, equity mutual funds have proved to be very efficient compounders of your investment.

Plan for contingencies
To be prepared for contingencies is the essence of any financial plan, more so for your retirement. The one thing that can create a big hole in your nest egg is an unforeseen medical expense. Ensuring that your medical insurance covers you during retirement is essential to protect your retirement corpus from sudden depletion. Mutual funds can be used to provide for contingency expenses.

Investment portfolios are constructed to cater to multiple goals in the entire lifecycle. To make sure you have optimum funds available for every goal and save enough for your retirement too, risk and returns must be managed efficiently. Efficient portfolios are the ones that can cater to multiple lifecycle goals with a continual flow of capital, in and out of it.

The writer is founder & chief executive officer, Nestegg

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