Make sure your money outlives you

During a recent visit to my hometown, Durgapur, I noticed a striking trend: many residents are retirees, while their children, well-educated and successful, have settled elsewhere. Such a scenario brings to the fore a critical aspect of retirement planning — ensuring financial independence. In this article, we'll explore strategies to achieve this goal and to avoid some common pitfalls that could leave you in a tough spot financially.

Liquidity: the lifeblood of retirement planning

Liquidity is at the heart of a successful retirement. Many retirees rely on Monthly Income Schemes (MISs) offered by banks or post offices for steady income, but these schemes might not offer the sort of growth you need to keep pace with inflation. To extend the runway of your retirement corpus, consider investing a portion of your savings into hybrid mutual funds and setting up Systematic Withdrawal Plans (SWPs) with an annual withdrawal rate of around 6-7%.

Here’s a hypothetical example to illustrate how this strategy would work. Imagine you have a corpus of ₹1 crore. By investing 50% (₹50 lakhs) in a hybrid fund that balances equity and debt, you could achieve both growth and stability.

Suppose you’d made such an allocation in 2008 and set up a monthly withdrawal of ₹25,000 (i.e. an annual withdrawal rate of 6% of the base corpus). Despite the 2008 market crash — one of the worst in history — this strategy would’ve proved resilient. By 2024, after 192 monthly withdrawals totaling ₹48 lakhs, your investment could’ve grown to around ₹94 lakhs (this is what some hybrid funds would've actually yielded over the period in question), which gives a CAGR of approximately 9% after considering the monthly withdrawals#.

This example demonstrates that with the right mix of growth and stability, your retirement fund can outlast even the most turbulent market conditions.

Beyond the financial aspects of retirement, here are three other facets that are also critically important for a smooth retirement:

Lifestyle: staying active and engaged

Retirement is a time to pursue hobbies, travel, and spend time with loved ones. Find activities that bring you joy, such as gardening, painting, or music. Travel can offer new experiences and perspectives. The key is to engage in pursuits that keep you active and give you something to look forward to.

Legacy: creating a lasting impact
Retirement is also a time to think about the legacy you want to leave behind. Estate planning allows you to distribute your assets according to your wishes. Charitable giving and setting up an inheritance plan for your family are also ways to leave a lasting impact.

Loneliness: combating social isolation

Loneliness can be a significant issue in retirement, leading to a decline in mental and physical health. Join clubs, volunteer, or engage in community activities to build social connections. Retirement communities can offer a built-in network for forming friendships.

A fulfilling retirement often involves finding a sense of purpose. Whether through volunteering, mentoring, or continued learning, retirement offers the chance to explore what brings you joy and meaning.

Ultimately, it’s all about longevity

The upshot is this: average lifespans are steadily rising, and your retirement could span decades. That’s why, in addition to remaining healthy and having strong social bonds, you also need to ensure you have a robust corpus to support the lifestyle you’re used to. Given the complexity of retirement planning, it's crucial to consult a qualified financial expert. Errors in this domain of life can have significant and irreversible consequences. Remember: the goal is to ensure your money outlives you, not the other way around.