In a world of rising life expectancy and limited pension coverage, a retirement plan is no longer about saving adequate money – it is about ensuring that your retirement fund lasts for your whole life. For most retired Indians, this is the biggest challenge: inflation, unexpected expenses, medical exigencies, and market fluctuations can quickly erode one’s corpus unless it is structured smartly.
This is where smart retirement planning comes in, with different layers to handle immediate, mid-term, and long-term needs. Besides this, retirees need to focus on generating smarter returns through strategic allocation, tax optimisation, and risk control to live comfortably without financial stress.
Structuring a retirement corpus – a pyramid framework
Base layer: meant for safety and liquidity (50–60 percent allocation) This is the foundation of your retirement fund. This ensures that you always have access to money when necessary – for regular monthly expenses or emergency conditions – without exposing your investments to high risk.
Best options:
● Liquid and ultra-short debt mutual funds.
● SWPs (systematic withdrawal plans) with short-duration funds.
● Senior Citizen Saving Scheme (SCSS).
● RBI bonds.
● Emergency buffer in overnight or arbitrage funds.
This layer ensures uninterrupted cash flows, reduces stress during market downturns, and provides easy access to capital when needed.
Middle layer: for stability and moderate growth (25–30 percent allocation). This part of your corpus should beat inflation, maintaining your purchasing power while preserving capital with moderate risk.
Ideal investments:
● Multi-Asset Allocation mutual funds, which balance equity, debt, and gold.
● High-quality corporate bond funds.
● Conservative debt portfolio management services (PMSs), that deliver monthly or quarterly payouts with stable yields.
This layer plays a vital role in funding your medium-term needs, helping preserve wealth, while generating dependable income.
Top layer: for long-term growth. The final layer focusses on growing your wealth over the long run. It’s essential for retirees worried about outliving their savings or those who want to leave a financial legacy.
Best options:
● Flexi, large, and midcap equity mutual funds.
● Balanced Advantage Funds for dynamic equity-debt balancing.
● High quality equity PMS (for high-net-worth individuals).
Withdrawals from this layer should be kept minimal early in one's retirement. Let this part grow and act as a shield against inflation and an inheritance for your family.
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Smarter returns: it’s how you grow
Building a comfortable retirement corpus isn’t just about fund selection — it’s about smart decisions across your portfolio. Retirees must focus on:
● Strategic allocation: diversify across assets — equity, debt, gold — to reduce risk.
● Risk control: avoid chasing high returns; aim for stable, inflation-beating growth by evaluating market risks and volatility.
● Tax optimisation: use exemptions and smart withdrawal strategies to keep more of what you earn.
Tax tip: long-term capital gains (LTCG) up to ₹1.25 lakh from equity mutual funds are tax free. Spread your withdrawals over the financial year to stay within this limit. Also, harvest your losses to offset gains and reduce your tax burden, improving post tax returns.
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Don’t overlook the National Pension System (NPS)
The NPS is a powerful retirement tool. Here’s how it works:
● On retirement, 60 percent of the corpus can be withdrawn tax-free.
● The remaining 40 percent must be used to buy an annuity, which provides a guaranteed monthly income for life.
New benefit: The Systematic Lumpsum Withdrawal (SLW) option allows retirees to stagger their 60 percent tax-free withdrawal over several years. This helps:
● Reduce tax liability.
● Avoid selling investments during market downturns.
● Enable market-linked growth on the remaining corpus.
Tip: during your working years, choose the Active Choice option in NPS. This has higher equity exposure which gives better returns over the long term compared to the default Auto Choice.
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Common mistakes to avoid
● Relying only on annuities: they offer safety, but returns are low and funds get locked.
● Ignoring healthcare inflation: ensure that you always have ample health insurance and a separate medical emergency fund.
● Investing in illiquid products: avoid assets like real estate or ULIPs with long lock-ins.
● Lack of estate planning: write a registered will, assign nominees, and consider a family trust to avoid future disputes.
Conclusion: plan smart, live free
A comfortable retirement isn’t just about a large corpus. It’s about using your savings wisely, planning for risks, and ensuring steady income for the rest of your life. The pyramid framework combined with risk-adjusted strategies and tax-efficient tools helps you build a balanced retirement plan that meets day-to-day needs, prepares for emergencies, and grows your wealth for the long run.
The author is Group CEO and CIO Wise Finserv (Private Wealth).
Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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