Khota Paisa

Making A Post-Retirement Portfolio

Posted in Retirement Planning by khotapaisa on August 23, 2009

Consider a person who has recently retired at the age of 60. All his savings, provident fund, gratuity etc put together provide him with a corpus of 45 lakhs. Staying in his own house, he has no dependent other than wife. The couple have the following expenses to cover.
Monthly Household Expense : 10,000/-
Yearly Travel Expense : 25,000/-
All the expenses total to 145,000/- per year.

Goals
 1. Medical Emergency – They should have a medical emergency cushion of 5-10 lacs. This can be provided by a combination of medical insurance & medical emergency fund. Even if they can afford a full 10 lacs S.A insurance, they must have their own medical fund. An insurance of 5 lacs with a 3 lacs medical fund would be a good starting point.
2. Emergency Fund – For retirees, the size of emergency fund should be 1-3 years worth of expenses. This would mean keeping aside around 2 lacs in this case covering 1+ years of expense.
3. Monthly Cash Flow – To cover the expenses, they need to keep money in combination of Post office MIS, Bonds, Senior citizen saving scheme etc.

Portfolio
Looking at the goals listed above, the portfolio may look like this.

Purpose : Medical Fund
Amount : 3 lacs (with 5 lacs insurance)
Invested in : A combination of long term debt fund & fixed deposits.

Purpose : Emergency Fund
Amount : 2 lacs
Invested in : A combination of long term debt fund & fixed deposits.

Purpose : Cash Flow
Amount : 1.5 Lacs/year
Invested in : Assuming a safe return of 6%, they need to invest atleast 25 lacs in safe instrument. They should start with putting 9 lacs in Post office MIS (joint account). They can then put next 15 lacs in senior citizen saving scheme. They can further put 6 lacs in debt funds. With the 30 lacs invested towards providing cash flow, the couple can decide to put the remaining 15 lacs in combination of long term funds, government bonds, fixed deposits etc. They may additionally invest (preferably less than one third of the remaining 15 lacs) in balanced fund/equity diversified fund depending on the comfort level.

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