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If you plan to retire early, ensure a steady income stream

You can consider investing the retirement corpus in FDs, debt MFs, hybrid debt-oriented funds.
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First Published: Thu, Oct 18 2012. 08 35 PM IST
Ramesh Pathania/Mint
Ramesh Pathania/Mint
I am a 50-years-old bank employee and want to take voluntary retirement in March and be independent. My monthly pension would be around Rs.16,000. My retirement benefits after deducting bank liabilities would be Rs.20 lakh. My current investments include a life insurance with an annual premium of Rs.10,000 for a sum insured of Rs.10 lakh and another for the same premium and sum insured of Rs.17 lakh. I also have another money-back policy. I have systematic investment plans in HDFC Top 200 (Rs.1,500 since 24 months) and Reliance Gold (Rs.1,000 since 5 months). I have a medical policy of Rs.2 lakh. Apart from the monthly pension, being a performing artiste, I am expecting some income as remuneration from my music, voice-over programmes and writing work (which is not fixed in nature). Guide me regarding putting my retirement fund to fetch maximum yield, keeping in mind to get monthly income (by way of interest/dividend), meet expenditure for my daughter’s education and wedding and lead a decent life.
—Sridhar
At 50 years, you still have a career ahead and your part-time profession of performing artist should hold you in good stead. You should focus and ensure on how you can create a steady income from this profession as this will become critical going forward.
Starting with investments, you can consider investing the retirement corpus in fixed deposits (FD), debt mutual funds, hybrid debt-oriented funds.
It is advisable to use the dividend portion for the first few years before you are able to establish a regular stream of income other than your pension. You can consider funds such as Templeton Short Term and Birla Sun Life Dynamic Bond Fund. Reliance MIP is a fund with consistent performance in the monthly income plan category. Bank FDs can also be an option and you may consider locking in the same for a longer period to maximize the high interest rate regime.
And from the above investments based on your requirements you can start using the interest or dividends and even better systematic withdrawal plan, the same being more tax efficient.
However you should ensure not to withdraw in excess of total earnings from the corpus as this will lead to erosion of capital. And as mentioned above, after few years this also needs to be stopped, as you should aim at growth of capital in line with the inflation rate if not more. And in the current scenario the same is not possible.
Your life insurance is on the low side. Increase your life cover and consider term plan. The cover should be equivalent to seven to eight times of your current annual income.
Also, increase your medical insurance and make sure your family is covered too.
Queries and views at mintmoney@livemint.com
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First Published: Thu, Oct 18 2012. 08 35 PM IST
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