Home / Money / Q&a /  How should I allocate funds to get a pension of 1.25 lakh monthly?

I am 56 years old and will retire next year. Thereafter, I want a monthly income of 1.25 lakh (inflation adjusted) for 25 years. What should be the size of the corpus needed for this purpose? I am not eligible for pension and therefore plan to have a corpus with an asset mix of 50% in fixed income, 40% in balanced advantage and multi asset funds and 10% in index funds. Is this plan fine?

—Name withheld on request

To work on the total corpus needed, factors like inflation and investment allocation across debt, hybrid and equity funds are important.

In present times, generating higher overall returns is only possible when you have some equity allocation. The key however, is to work on the right balance between available corpus and the risk-taking ability. Here are three asset allocation suggestions for you:

Option 1—Allocation to funds: debt – 16%, hybrid - 43% and equity - 41%.

Stages of withdrawal (in years): debt – 1 to 3, hybrid – 4 to 5, Equity –6 to 17 and hybrid – 18 to 25. Total corpus needed at retirement: 2.94 crore.

Option 2Allocation to funds: debt – 25%, hybrid - 57% and equity - 18%.

Stages of withdrawal (in years): debt – 1 to 5, hybrid – 6 to 9, equity – 10 to 16, hybrid – 17 to 25. Total corpus needed at retirement: 3.16 crore.

Option 3 – Allocation to funds: debt – 48%, hybrid - 40% and equity - 12%.

Stages of withdrawal (in years): debt – 1 to 10, equity – 11 to 14, hybrid – 15 to 25. Total corpus needed at retirement: 3.40 crore.

The return assumed for debt funds is 4% per annum, hybrid funds is 7% p.a. and equity is 10% p.a. Based on the options, you can decide how much you need to invest and in what asset class to withdraw 1.25 lakh per month with 6% p.a. inflation rate. Though option 1 has higher allocation in equity, you can consider it as you will be giving sufficient time for the equity funds to grow as the withdrawal from it starts from the sixth year onwards. However, you may like to do the allocation based on your risk appetite

Harshad Chetanwala is co-founder at MyWealthGrowth.com.

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