Retirement planning is a complex puzzle, as it involves planning for future expenses that span multiple years with no accurate way to predict the life expectancy of the retiree. So, it requires thoughtful planning to ensure that one does not run out of money during one’s lifetime.
Once the monthly income from salary or business stops, the most critical aspect is creating a regular stream of income that is adjusted for inflation to support your retirement expenses, healthcare expenses, and occasional extravagance.
Here’s how you can plan for a sustainable post-retirement income strategy:
1. Start With A Retirement Corpus
A well-funded, or over-funded, retirement corpus is a good starting point. Broadly speaking, a person retiring in his 60s should have at least 20–25 times his annual expenses by the time he retires. This corpus should be invested across diversified assets such as equity, debt, real estate, and cash equivalents to benefit from both growth and stability.
2. Bucket Strategy For Income During Retirement
For retirees who do not plan to regularly rebalance their retirement corpus, a bucket strategy, which divides their retirement savings into multiple buckets, is a suitable option.
They can park their corpus for the next 3 years in liquid instruments such as savings accounts, fixed deposits, and short-term debt funds for expenses required during this period.
Next, they can park a portion of the balance corpus into longer-term debt funds or Senior Citizens Savings Scheme (SCSS) for expenses needed between 3 and 7 years.
Finally, “they can invest the corpus required after 7 years into a mix of equity and debt instruments for long-term growth and future income replenishment. This strategy helps you avoid panic-selling during market downturns and maintains liquidity for your near-term needs,” says Abhishek Kumar, Founder at SahajMoney, a financial planning firm.
3. Invest In Annuity Products For Regular Income
Retirees content with a fixed income during their lifetime can consider investing in annuity products, which are insurance products that offer a fixed monthly payout in return for a lump sum investment. It comes with various options such as immediate annuity products, which start paying income right after investment, or deferred annuity products, which start after a certain period.
One should be conscious of the fact that although these products provide guaranteed income, they may not beat inflation, as the payout is fixed and doesn’t account for inflation. So, one is advised to use them to cover only essential monthly expenses, and not for their entire income need.
4. Use The 4 Per Cent Withdrawal Rule Cautiously
The “4 Per Cent Rule” suggests withdrawing 4 per cent of the retirement corpus in the first year of retirement and then adjusting it for inflation thereafter. For example, with a Rs 1 crore corpus, one can withdraw Rs 4 lakh in the first year.
However, “be mindful that this rule was designed for Western economies and may not fully suit Indian conditions with higher inflation and lower annuity yields. So, use it as a rough guideline, and monitor your withdrawals yearly. Best would be to limit the withdrawal rate to 3 per cent so that one can increase the longevity of their retirement corpus,” suggests Kumar.
5. Tap Government And Senior Citizen Schemes
For conservative investors, India offers several government-backed options for retirees. Senior Citizens’ Saving Scheme (SCSS) is one such option in which one can invest up to Rs 30 lakh to receive quarterly payouts with an attractive interest rate (currently 8.2 per cent p.a.). Also, Pradhan Mantri Vaya Vandana Yojana (PMVVY) is another option which provides guaranteed returns with monthly or annual payouts for up to 10 years. Finally, the Post Office Monthly Income Scheme (POMIS) is an option which pays monthly interest and is relatively low-risk. These schemes are safe, offer decent returns, and can form the backbone of one’s fixed income portfolio.
6. Continue Passive Investments
As retirement expenses run into multiple years, one need not withdraw all investments after retirement in one go and one can also manage their retirement needs by using Systematic Withdrawal Plan (SWP) from debt mutual funds. This allows one to withdraw a fixed amount monthly from debt fund portfolio while the balance remains invested and grows over time.
7. Account For Healthcare And Emergencies
One should always be prepared for an emergency situation that could require a large amount of money at short notice. So, allocate a portion of your retirement corpus, ideally 6–12 months of expenses, in liquid funds or fixed deposits for this purpose. Additionally, maintain a comprehensive health insurance plan so that unexpected medical expenses don’t disrupt your income strategy.
“Creating a reliable income stream post-retirement isn’t just about investing smartly; it is also about balancing liquidity, safety, returns, and flexibility. The right mix will vary from person to person, based on lifestyle, health, dependents, and risk appetite,” says Kumar.
So, start planning early, review your strategy annually, and consider consulting reliable and qualified financial planners to help tailor a plan that sustains you for decades. After all, retirement should be about living with dignity and not worrying about the next month’s bills.
