Except for the lucky few who have enough wealth, no one is indifferent to what happens when you stop earning. The fear of the unknown is always present.
We have all known seniors who struggle to meet all of their financial obligations. When one does not have enough money, life becomes difficult.
Relying on traditional deposits for interest income
Many retirees go through a cycle of overspending and underspending. When a salaried person retires, he receives this sum of money, which can range from $50 and $60 lakhs. It seems to be a considerable sum. It is almost certainly more than the retiree has received in a lump sum in his lifetime. They believe they have unlimited purchasing power. Many investors assume $50 lakh to be a large sum and therefore withdrawing an equal amount every month not realizing that the money will sustain them for a limited period. An alternative way would be to leave out $15 lakhs and put the rest $35 lakhs in a fixed deposit for five years. In this way, they can pay themselves. $25,000 each month for five years at the end of which they would have a little more than $48 lakhs. They can then book again $15 lakh to earn a monthly pension income of $25,000 keeping the rest $33 lakh on a fixed deposit. In this way, the cycle continues although it is clouded by the disadvantage of having only $25,000 each month to pay expenses, therefore without taking into account the continuous devaluation of money.
Some can put their money in the Senior Savings Plan (SCSS) to earn quarterly interest at eight percent per year. However, considering the effect of inflation on the prices of everyday life, would these investment methods be enough to pay for a retired life of 30 years or more?
The aforementioned assumptions are just assumptions made to call attention to inadequate retirement planning. For starters, a retirement corpus up $60 lakhs is simply not enough to sustain the remaining years of life, especially when there is no income and susceptibility to hospitalization and medical treatment is increased. The tendency to stick to traditional investment options after retirement is based on the strongly held belief that the retirement corpus should be invested in 100 percent safe options. That “safety net” is all most seek, and it is this mindset that has caused many retirees to depend on family members for money or finances during emergencies.
Decide monthly withdrawals
As an aside, the concept of “safety net” is a misnomer and can be labeled as nothing less than “hoax”. Realizing how inflation can affect our savings and affect our earnings in the long run, it makes sense to not only choose the right investment options after retirement, but also to decide how much principal to withdraw without losing the entire amount. . expenses and inflation. At the current rate of inflation, it would take four times as much money to pay for daily living expenses, so it would be necessary not only to shake up the accumulated corpus to earn more money, but also to allow for larger withdrawals during the golden years of life. . Assessing how much you would need can be as hard as assessing how much you would need to withdraw each month to live comfortably at all times.
How much money should you withdraw each month?
It’s not rocket science to decide how much to save, invest, and withdraw to avoid depleting your retirement capital. Common sense determines how we should decide our withdrawals based on the interest rate of the income from our savings and the corresponding inflation rate. Only withdraw what your savings earn above and beyond the inflation rate to support an inflation-adjusted withdrawal rate. Think carefully. You only need to withdraw no more than one percent of the corpus each year if your savings earn eight percent and inflation is seven percent. This will ensure that your savings grow at least in line with inflation, preventing you from losing all your money in old age.
Eight percent returns from debt funds or other investment opportunities may not be enough, highlighting the need to invest some money in stocks as well. However, capital investments must continue for at least five to seven years to meet medium-term financial objectives and more than a decade to achieve long-term financial objectives.
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First Post: Jan 17, 2023, 07:57 am IS