My spouse and I want to retire early. How should we plan to invest Rs 40 lakh for 3 years to generate a monthly income of Rs 1 lakh?

My husband and I are working and want to retire in the next three years. Our loan of Rs 1 crore will be cleared in the next three years with our salary income. We have around Rs 40 lakh in cash now. How can we generate around Rs 1 lakh monthly income after three years with this? Is it wise to invest this corpus of Rs 40 lakh in debentures?  

Name Withheld  

Reply by Mayank Bhatnagar, Chief Operating Officer, FinEdge  

There is a reason why retirement planning is one of the most complicated goals. Apart from the fact that it is inherently unpredictable (as the final required outlay would depend upon life expectancy), it also requires you to factor in a host of variables like inflation, post-retirement returns, retirement age, etc.  

In your case, since there is no mention of your current age and retirement age, let us go with the assumption that you are planning for a retirement duration that would last for 20 years. To generate a static monthly income of Rs 1 lakh for a 20-year duration, you would need to have roughly Rs 1.2 crore, assuming that you will be able to generate a post-tax return of 8 per cent on your corpus. Things get a little more complicated if you factor in an inflation rate of 5 per cent post-retirement (which is the right way to plan things), as the corpus requirement for generating an inflation-adjusted equivalent of Rs 1 lakh per month for 20 years would be roughly Rs 2.1 crore.  

Do not be daunted by these figures, though. Retirement forces you to take a hard look at the numbers. In the end, you need to work with what you have and achieve the best possible balance between growth and capital preservation. Depending on your preferences, you may want to consider monetising other assets, such as a property and adding it to your retirement corpus. You could also seek other sources of income, such as part-time consulting assignments in your area of expertise or freelancing. Another option could be to rationalise your income expectations because facing facts, working with them, and investing prudently with the support of a qualified investment expert will ensure that your retirement fund outlasts you.  

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Rather than investing Rs 40 lakh into debentures, you could consider taking a measured degree of risk with this money and investing into a balanced advantage fund instead. As the name suggests, these funds balance out risks by dynamically adjusting their equity component. Do bear in mind that they carry an element of risk, and you may need to extend your investing timeframe by a couple of years if market forces dictate so. If that makes you uncomfortable, stick with AAA-rated deposits or bank FDs because the time frame of three years is not long enough to make a significant differential concerning compounding in either case.

(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.) 

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