Mis-Conception on Earning Retirement Salary:
What Retired person should have in their Retirement kitty? People are divided on weather they should be Cash Reach or Asset Reach at their Retirements?
Someone is thinking that Retired person should be Cash Reach while others are thinking Retired person should be Asset Reach.
I think Retired person should be having own house for enjoying their retirement with dignity and they should also be having sufficient Corpus in terms of cash as well as liquid assets for getting their “INCREMENTAL MONTHLY INCOME“.
Now a days people are having somany Wrong Perception about how they will get their Retirement Salary to enjoy their Retirement Life
1 My children will take care of me after my Retirements after all they are my real assets
The biggest mistake is to be having dependant on children’s. By doing so you are not only spoiling your retirement life but also prove your self a big hurdle to growth of your child. Instead of that educate your child to save for their retirement life because earlier you start ready to climb.
2 My savings will be sufficient for entire retirement life.
If you have saved in Bank account or FDs you are at highest risk of old-age poverty because purchasing power of your money is going to reduce due to inflation – we will discuss this later in this post.
3 I am having enough property.
Of course your property can be the source of your income in your retirement life by the means of Reverse Mortgage. But there are 2 major issues. First is your Reverse Mortgage period could be lower than your retirement period. Second and biggest problem is you will be getting fixed income through out your retirement period. – we will discuss later about this in this post
4 I am not going to live more
Due to advance medical sciences avg life of human being is increased and hence the retirement span is also lengthen. In this scenario your thought would result you facing old-age poverty.
5 Using FDs for getting Monthly Income
This is the most favoured option among the retired community just for 2 reasons.
First it is belived to be safe, but how much is a million dollar question – the maximum security of your investment is 1 Lakh only regardless your investment amount.
Second is Fixed Monthly Income but which is also not guaranteed on renewal of the FDs at maturity.
6 Opting for Gurrenteed Fixed Monthly Income
For getting monthly income people’s are widely using “GURRENTED FIXED MONTHLY INCOME” tools which will definately results in old-age poverty because INFLATION is the main villian in your Retirement Period, as per govt. target suppose inflation is remains at 4.8% then your requirement for monthly income will be 2X(doubled) in 15 years and 4X(four times) in 30 years but during this period your income will not be increased because you have choosen “GURRENTEED FIXED MONTHLY INCOME“. Due to higher Longevity of life now-a-days span of your Retirement Life is as long as or may be bigger than your earning life in above example we have calculated 30 years of retirement life span.
See the chart for Reality Check
Purchasing Power
In above chart after 35 years your monthly income requirement is almost twelve times these are an authentic Inflation Index figs declared by Income Tax Department of India
The perfect example of this is that the oneday pocket money of your child is more than your father’s starting monthly salary.
7 Using Monthly Div Option in Equity for getting Monthly Income.
Using this option has many disadvantages like it is not fixed for every month because div declaration is only possible if the profit generated If not your NAV of the fund will be reduced.
8 Using SWP from Equity Fund for getting monthly income
For planning their monthly income peoples are also doing one more mistake by investing retirement Corpus in equity fund and taking monthly income using SWP facility provided by AMCs. The main problem with this is when the market is in downside trends maximum no of units will be drained, which cannot be gained by any means, it is irrecoverable loss which results in to old-age poverty.
Then what to do and how to plan Retirement Salary (Monthly Income)? For that one should always follow.
“Debt is Darling & Equity is for Earning”.
You cannot have perfect Planning based on Equity only, as it is most volatile, or Debt only as there you could not be able to beat inflation also. Always use proper combination of Equity and Debt.
If you think Charles Darwin’s theory in this context
“In the Struggle of Survival in Retirement Life, One will win the Financial Stability who has the Fittest Investment Strategy for all the market conditions”
So what is the Fittest Investment Strategy? Which is suitable for all market situations, will be discussed in Coming blog post….
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