If you are about to retire and do not have a pension, then you need to get that income for meeting your needs from your portfolio.
Typically, when someone about to retire, I have seen that there is some sort of anxiety that kicks in. It is understandable too. After a long, long time, the monthly salary is about to disappear. You are on your own.
In this frame of mind, you tend to overreach, overprepare for the retirement. You don’t want your spouse and you to feel the heat.
Well, it can hurt your portfolio too.
I was talking to a retired couple recently, who wants to make a provision for a monthly income from their portfolio.
They have their estimate ready. “We need about 18 to 20 lakhs in a year.”
That is about 1.5 lakhs a month. My question, “Is this a certain expense. Will you spend that much every month?”
“Not really. But we can invest back what we don’t spend.”
I further ask, “What is the need based expense every month, required for daily household needs, medical needs, etc.?”
“Well, that would be about Rs. 60 to 70,000 a month.”
“Then you see, why do you want to pull out this extra money from the portfolio? While it is good to see that extra amount in the bank, it will lead to unnecessary transactions of selling, reinvesting, record keeping and, not to mention, taxation. Maybe, it is better to withdraw a smaller fixed amount of Rs. 75,000 a month and whenever there is an additional requirement, withdraw more.”
“Yeah, this makes sense.”
“Great. We can further adjust this amount for any bank interest, dividends, etc. you might be receiving. “
“So, you will set up an SWP for this amount?”
“Yes, that will ensure that the amount gets credited to your account every month.”
If have retired or closer to retirement, ensure that your portfolio remains geared to not only provide for immediate needs but also future requirements – known as well as unknown.
Read more: What can derail Mr Sharma’s retirement?