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Build Your Own Retirement Plan
Sep 20, 2012

As every retiree knows, the reversal of cash flows, from larger inflows (salary / business) and smaller outflows (household, medical, general expenses) to smaller inflows and larger outflows can be worrying.

This is mainly because often it has been difficult to build up a large enough investment corpus to generate safe returns that are high enough to meet inflated expenses at the time of retirement.

For those of you readers who are already retired, the main focus is on generating stable, regular, low risk retirement income from the existing corpus. But for those who are still employed and have some time to go before retirement, what is the best way to build the retirement corpus?

Here are some easy-to-implement steps that will help you do just this:

Step 1: Know What You Need

The first and most important thing to do is gain clarity on what exactly you want, financially. Start with what you spend today.

  • How much are you spending now?

  • On what are you spending - is all the expense necessity-based? Or is it largely luxury-based?

  • If you have an EMI, will it continue past your retirement age? (Probably not, banks will check a lot of your personal details before they give you a loan)

  • What is your current net worth that you can set aside for your retirement?

  • Most importantly, how much income do you want each month when you retire?

If your answer is 'I want Rs. 50,000 per month' - is that in today's terms, or including inflation?

With these questions and some more, you will be able to see exactly what your retirement corpus should be. This number might seem very high and you may think it will be difficult to achieve. if that is the case, you need to adjust your post retirement lifestyle requirements to whatever extent possible, such that you don't need to take additional risk on your post retirement corpus.

Also, keep in mind any external income sources you may have post retirement, for example: you may have a property that is yielding rental income; or a pension plan from your employer that will yield regular pension once you retire.

Step 2: Start Building Your Retirement Corpus, or Adjust Your Post Retirement Needs

Your asset allocation plays a very important role here.

Depending on what your age is i.e. how many years are left till you retire, you need to allocate your assets across equity, debt and gold.

If you have 10 or more years to go until you retire, channelize your funds largely into equity, with a portion in debt and about 10% in gold ETFs.

As the years pass, your fresh investments should go more into debt and less into equity, keeping the gold exposure to 10% approximately.

When there are 3 years left for you to retire, remove your equity component and invest it into debt, and all fresh investments should go into debt. You can also redeem your gold corpus and invest it into debt.

Remember, the more you invest with more time to go, the larger these investments will grow to be, so invest as much as you can in the earlier years!

Also, whenever investing, it is absolutely vital to keep tax in mind. Consider the post tax returns you require and invest your net take home funds accordingly. Also, try and save as much tax as possible, as this will have a very large impact on your overall wealth.

Step 3: Don't Dip Into Your Retirement Corpus

Once you start investing towards your retirement and building up a corpus, it's very important to let the corpus grow. Don't touch these funds unless you absolutely need to, and this should only be if you have already used up your contingency fund, which should be worth at least 6 to at most 24 months expenses, held across liquid funds and cash in your bank accounts.


Having a structured, intelligent financial plan in place for your retirement is one of the best things you can do to ensure a smooth, easy retired life. Make the necessary investments (including investing in professional guidance) to ensure that your retired life hits no road bumps and remains stress free!

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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