A Post Retirement Income Plan


Until a few years ago, almost no one was interested in annuities as a source of post-retirement income. In the last three or four years, members of the NPS have been interested in the concept of annuities and how they may be used to create income. Unfortunately, annuities, at least those offered in India, are prohibitively expensive, inefficient, and incapable of mitigating inflation, which is, after all, the greatest long-term threat to anyone's retirement income. As a result, retirees should consider alternative sources of income (whether fixed income or equity-based). Indeed, even the Pension Fund Regulatory and Development Authority (PFRDA), which now requires that 40% of a retiree's money accumulated in the National Pension System (NPS) be used to purchase an annuity, is considering adding a non-annuity withdrawal plan in its place. PFRDA recognises that annuity should not be the only option and may not even be the most appropriate one. Before you get started on your post-retirement plan, you need the best stock trading platform with the lowest brokerages to realise maximum profits from your investments. As one of the fastest growing and best brokerage firms in the country, we have created a suite of products to help you analyse stocks and make an informed decision. Developing a post-retirement income plan begins with an evaluation of your monthly income requirement and available money to determine if there is a meeting ground. Clearly, in the early years, there is little that can be done to alter this equation. As a general guideline, an initial withdrawal rate of no more than 6% is optimal. Anything more tends to increase the risk of capital depletion. Indeed, the lesser the withdrawal, the better. Keeping a close eye on spending, in the beginning, will pay dividends afterwards. If you can make do with less, that would be ideal. Increasing the withdrawal ratio exposes you to significant risk down the road because when you are attempting to develop a long-term withdrawal strategy from your investment, you must be prudent enough not to deplete your cash. Of course, there are times when a retiree may experience market misfortune. Interest rates may also tend to drop over extended periods of time in fixed income. You must choose an asset allocation strategy based on all of these considerations. Almost certainly, you will realise that an all-fixed-income strategy is insufficient. To sustain a rising inflation-beating income, a fixed income plan must accept a withdrawal rate that cannot exceed 4% and should preferably be lower. To put the concept into perspective, a withdrawal plan permits you to withdraw a significant portion of your income while leaving a tiny portion of your growth. Assume you have Rs 1000 and it increases by 8%. By deducting 6%, you retain a small portion of the appreciation to support a bigger income the next year. However, if you consume it all, your capital will remain constant, which is undesirable given that you will almost certainly require a higher income during the next 25 years. Given the reality of inflation and increased medical costs in old life, there is very little chance you will require less money in ten years. As a result, you must leave a portion of your growth and not consume it entirely. Not only that, the less money you borrow today, the more secure you will be later. As a result, you'll need to consider a conservative allocation, perhaps 15% to 35% in equity, depending on the size of your investment. If your capital is restricted, you might have to undertake more risk in equity. If you have more than sufficient capital, you can afford to have a lower equity allocation. The optimal strategy is to take away at most (ideally less than) 80% of the appreciation in the current year and then leave 20% there. This way, you'll have some room for capital growth, which is how you'll need to adjust it. This way, your income will rise faster in good times, but you will not deplete your capital in poor times, and it will remain fair. This level of discipline will provide a financially secure retirement. Whether you are starting your investment journey at retirement or are looking for a reliable trading and investment platform to grow your capital, then Zebu is the answer for you. As one of the best brokerage firms in the country, we have created Zebull, our best stock trading platform. We charge the lowest brokerage for derivative trading and will help you realise your financial goals. To know more about our products and services, please get in touch with us now.