A wise strategy is to divide the corpus into multiple buckets every 10 years, with the funds needed for the first decade allocated to debt instruments and a plan for regular withdrawals to cover expenses
BSNL offering a voluntary retirement scheme (VRS) to its employees has been in the news recently. Such schemes are mostly offered by public sector companies where they are given the option to retire voluntarily before they reach retirement age and receive a lump sum payment.
However, employees should remember that the VRS amount should be used wisely to meet present needs and to secure their retirement. “When individuals receive a sudden influx of cash, such as a VRS payout, they often tend to spend it quickly. Instead, one should be prudent with the VRS payout to ensure they don’t deplete their retirement corpus during their lifetime,” says Abhishek Kumar, a Securities and Exchange Board of India (Sebi) registered investment advisor (RIA), and founder and chief Investment Advisor of SahajMoney, a financial planning firm.
“First, list all urgent financial commitments such as loan repayments, children's education, or medical expenses. Keep a portion of the VRS fund in a savings account or liquid funds to address these needs promptly,” says Col Sanjeev Govila (retd), certified financial planner, and CEO, Hum Fauji Initiatives, a financial advisory firm.
Set aside at least six-12 months of expenses in a highly liquid and safe instrument like a bank fixed deposit or a short-term debt fund. This provides a safety net against unexpected situations.
Also, use part of your VRS fund to buy adequate health insurance coverage if not already in place. This prevents financial stress during medical emergencies.
Finally, use a portion of the VRS money to clear any existing personal loans, credit card dues, or high-interest debts. “This is crucial because post-retirement, your regular income will be lower and debt servicing becomes more challenging,” says Govilla.
“A good approach is to divide this corpus into multiple buckets, each covering a 10-year period. The funds required for the first 10 years of retirement should be allocated entirely to debt instruments, with a plan for regular withdrawals to cover expenses during this time,” says Kumar.
Use instruments like Senior Citizens Savings Scheme (SCSS) or Systematic Withdrawal Plans (SWPs) in debt mutual funds to generate a regular, tax-efficient monthly income. Avoid over-reliance on fixed deposits, as they may not beat inflation.
Allocate 20-30 per cent of your corpus to equity mutual funds for long-term growth. “Choose large-cap or balanced funds to minimize risk while benefiting from market growth over time. Don’t let inflation erode your dreams—invest smart, not just safe,” says Govilla. He suggests that one invests in products that match their retirement timeline. Options like National Pension System (NPS) or balanced advantage funds can provide tax-efficient growth with moderate risk.