How to ensure your retirement corpus does not run out early

I plan to retire in October 2027 with a retirement corpus of about ₹1.50 crore spread across mutual funds, ULIPs, stocks, debt instruments, fixed deposits, and gold. I have an outstanding home loan of ₹14 lakh to be repaid over seven years, monthly expenses of ₹90,000, and health insurance of ₹18 lakh each for my spouse and me, with no term cover. How do I ensure that my retirement corpus does not run out early?

- Name withheld on request

Retirement is an often-ignored subject, but it's good to see that you have been able to stitch together a reasonable corpus. However, as your income stream stops, retirement planning is a period wherein your room for error is very limited and hence needs to be done very meticulously.

In your case, if we assume 5% inflation and 10% return on your investments, your corpus falls short. Considering a life expectancy of 85 years your corpus gets exhausted in 18 years versus 25 years.

Also, given that we need a buffer for uncertain expenses and a longer lifespan, I strongly recommend you cut expenses by at least 20% post-retirement, leaving you with some buffer.

Investment returns of 10% have been considered due to multiple factors, including a moderate risk profile and a conservative return expectation. The past five years, where returns have been around 14% and higher should not be extrapolated, as nominal GDP numbers in India have been coming down and as a matter of prudence for financial planning, we prefer erring on the side of caution.

A few tips and suggestions to make this period steadier and more certain:

1) Take care of your health as much as possible—Your health insurance is ₹18 lakh, which is a little tricky considering the costs, especially in case of critical illnesses. Talk to your financial advisor about specific top-up/super top-up insurance plans. A proper lifestyle will go a long way towards optimizing your retirement.

2) Optimize savings as much as possible—This is very important especially in the initial years that helps the corpus compound as much as possible leading to lesser strain in the later years.

3) Side gig or income stream: An additional source of income in the form of any vocational service or consultancy can help significantly in both keeping you occupied and chipping in to keep the corpus steady.

4) Avoid locked-in products, money-back insurance plans and exotic investments: Considering your age and the fact that your taxation would be negligible, a simple investment strategy consisting of index funds, some active funds, fixed deposits, debt funds and some small allocations to bonds should be good enough to meet your objective of 10% post-tax returns. You cannot afford any investment accidents.

5) Keep 12 months of lifestyle expenses in liquid or equivalent investments.

With proper planning, a little bit of caution and effort, you can have a smooth retirement.

Vivek Banka, a CFP is the founder of GoalTeller.