Ability to sustain same lifestyle post retirement
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Amit Batra is 56 today and will retire in two years. All his life he was invested in insurance and fixed interest instruments. Over the years, he became an expert and was acclaimed as most knowledgeable amongst friends, colleagues; and was the person to consult for "safe avenues" of investment. He has exposure to all kinds of policies including some unit linked as well. His overall asset allocation was 10 per cent in equities and balance in debt or fixed interest instruments. His knowledge and skills were impeccable but over time they became redundant.
All his life he worked hard, educated his children well and basically has provided his family all the good things possible.
Finally, he has calculated that with all his investments during his working life so far, he would be able to collate a retirement kitty of about Rs 40 lakh. He proposes to have a retirement income of about Rs 20,000 per month on a pre-tax basis by purchasing an annuity plan from LIC. This will earn him approximately 6 per cent annuity lifelong with return of capital to his heirs upon his death. Keep in mind that this amount of Rs 20,000 is much lower than his last drawn salary of Rs 60,000 per month and he cannot imagine living his life and supporting his family in this amount. But he seems to have no choice; who else will give him an assured guaranteed rate of return and thus a fixed monthly income.
Something is not correct here and something has significantly gone wrong somewhere, he feels. He feels he has not got enough and the fact is cast in stone. Some day like Batra we may also turn back and realise that we do not have enough. Batra feels that the future years will be full of compromises; he does not know what expense to cut and how? He knows that over time things just get worse; just let the inflation catch up. Given the situation is, let us understand what is the best Batra can do with his Rs 40 lakh in a situation like this;