Listen to this articleDreaming of retiring early and living a happy, stress-free life is something you might aspire to. But have you truly considered how much money you’ll need each month to maintain your lifestyle during retirement?
It’s easy to assume that your current monthly expenses will be enough, but is that really the case? There’s an invisible force you may be overlooking—inflation, which silently drives up your expenses year after year.
For instance, if your family’s monthly expenses are ₹40,000 today, how much do you think you’ll need 15 years from now when you retire?
With an average inflation rate of 7%, you’ll require at least ₹1 lakh per month just to maintain the same lifestyle. Are you prepared for that?
In today’s world, the lack of a pension has become a major source of tension for many. But does it have to be this way? If we start planning now, we don’t need to worry about not having a pension. Why not create your own pension instead?
How? It’s simple. All you need to do is start investing a fixed amount every month as soon as you begin your career.
If you start early and invest consistently in high-return assets like hybrid funds and equity, you can build a corpus that provides ₹1 lakh monthly income.
For example, investing ₹2,000 every month from age 25 can help you accumulate ₹1.3 crore by retirement at age 60.
Isn’t that a small price to pay for a stress-free retirement?
Table of Contents:
What Happens When You Invest ₹1 Crore?
How can you generate a monthly pension of ₹1 lakh after the age of 60? Let’s explore.
At retirement, you can allocate your accumulated corpus across debt and equity-based investment plans. But here’s the key, shouldn’t your investments deliver returns higher than the inflation rate while also being tax-efficient?
With the right strategy, this approach can ensure you receive ₹1 lakh as a monthly pension.
Investors are typically categorized as Conservative, Moderate, or Aggressive. But here’s an important question:
Investing in equity and hybrid funds, which typically outpace inflation, is crucial for maintaining your purchasing power over time. Diversifying investments across debt and equity instruments ensures steady growth.
How much corpus does each type of investor need to create ₹1 lakh in monthly retirement income? What investment strategies and techniques can help achieve this? Let’s dive deeper to find the answers.
1. Conservative Investors
Conservative investors are generally hesitant to take risks with their investments. To ensure a steady income, they should allocate a larger portion of their corpus to debt-based instruments and a smaller portion to equity-linked plans.
But can this approach alone generate enough monthly income for a comfortable retirement? Let’s find out.
Here’s a recommended allocation for a ₹1 crore corpus for conservative investors:
- Fixed Deposit (FD):
Invest 25% of the corpus (₹25 lakhs) in FDs, which offer an annual return of 7%. This translates to a monthly income of ₹14,585. - Post Office Senior Citizen Savings Scheme (SCSS):
Allocate another 25% (₹25 lakhs) to SCSS, which provides an annual return of 8.2%. This generates a monthly income of ₹17,085. - Debt Mutual Funds:
Invest 25% (₹25 lakhs) in debt mutual funds, which offer an average annual return of 8%. This results in a monthly income of ₹16,665. - Hybrid Mutual Funds:
Allocate the remaining 25% (₹25 lakhs) to hybrid mutual funds, which can potentially generate an annual return of 10%. This translates to a monthly income of approximately ₹20,835.
When you combine all these, the total monthly pension comes to around ₹69,170. But is this enough if your goal is ₹1 lakh per month?
Since this approach involves lower risk and lower returns, conservative investors may need to build a larger corpus than ₹1 crore to achieve ₹1 lakh in monthly pension.
Alternatively, wouldn’t it make sense to take a slightly higher risk and increase the allocation to hybrid mutual funds? Wouldn’t that help bridge the gap?
2. Moderate Investors
Compared to conservative investors, moderate investors should allocate a higher percentage of their corpus to equity-based plans while maintaining a smaller portion in debt-based instruments.
But how should a ₹1 crore corpus be divided to generate a steady monthly income? Let’s break it down:
- Fixed Deposits (FDs):
Allocate 15% of the corpus (₹15 lakhs) to FDs, offering an annual return of 7%. This provides a monthly income of ₹7,500. - Post Office Senior Citizen Savings Scheme (SCSS):
Invest another 15% (₹15 lakhs) in SCSS, which offers an annual return of 8.2%. This translates to a monthly income of ₹10,250. - Debt Mutual Funds:
Allocate 25% of the corpus (₹25 lakhs) to debt mutual funds, which can yield an annual return of 8%. This results in a monthly income of ₹16,665. - Hybrid Mutual Funds:
Invest the remaining 45% (₹45 lakhs) in hybrid mutual funds, which offer an annual return of 10%. This generates a monthly income of ₹37,500.
Adding all these together, the total monthly income comes to approximately ₹71,915. But is this enough to achieve the ₹1 lakh monthly pension goal?
To bridge the gap, wouldn’t it be wise to either build a larger corpus or consider increasing your equity exposure?
Allocating more to high-performing large-cap mutual funds, which can yield around 12% annually, could help you close the gap more effectively. Isn’t it worth considering a strategy that balances risk and reward?
3. Aggressive Investors
Compared to moderate investors, aggressive investors should allocate a significantly higher portion of their corpus to equity-based plans while keeping a small allocation in debt-based instruments for safety.
But how should an aggressive investor divide a ₹1 crore corpus to achieve a robust monthly pension? Let’s explore:
- Fixed Deposits (FDs):
Allocate 15% of the corpus (₹15 lakhs) to FDs, which offer an annual return of 7%. This provides a monthly income of ₹7,500. - Debt Mutual Funds:
Invest another 15% (₹15 lakhs) in debt mutual funds, which offer an annual return of 8%. This results in a monthly income of ₹10,000. - Hybrid Mutual Funds:
Allocate 35% (₹35 lakhs) to hybrid mutual funds, which offer an annual return of 10%. This generates a monthly income of ₹29,165. - Equity Mutual Funds:
Invest the remaining 35% (₹35 lakhs) in equity mutual funds, which can yield an annual return of 12%. This provides a monthly income of ₹35,000.
Altogether, the total monthly income would be approximately ₹81,665. But is this enough to achieve a ₹1 lakh monthly pension goal?
To bridge the gap, shouldn’t the investor consider adding a larger corpus or increasing the equity allocation?
By investing in large-cap mutual funds that can deliver around 12% annual returns, it’s possible to achieve the target. Isn’t it time to take that step toward a more secure and prosperous retirement?
How Should 1.3 Crore Should be invested to receive a monthly pension of 1 Lakh?
| Investment Type | Investment Amount | Expected Return % | Monthly Income (Rs.) |
| Post Office Fixed Deposit | ₹30 Lakhs | 8.20% | ₹20,500 |
| Equity Savings Funds | ₹20 Lakhs | 7.50% | ₹12,500 |
| Hybrid Funds | ₹50 Lakhs | 10% | ₹41,665 |
| Large Cap Funds | ₹30 Lakhs | 12% | ₹30,000 |
| Total Monthly Income | ₹1,04,665 |
To receive ₹1 lakh monthly pension
A corpus of approximately ₹1.3 crore is required to generate a monthly pension of ₹1 lakh. How should this ₹1.3 crore be allocated for investment? Let’s break it down:
By investing ₹30 lakh in Post Office Savings Schemes, ₹20 lakh in Equity Savings Funds, ₹50 lakh in Hybrid Funds, and ₹30 lakh in Large Cap Funds, you can expect to receive a monthly pension of approximately ₹1 lakh. (Refer to the table for details.)
Doesn’t this allocation look like a smart way to secure your future?
Is higher income possible?
Many may question whether the returns we have mentioned in these plans are achievable. The answer is yes, the returns we’ve outlined are indeed possible.
In fact, historical data shows that these fund categories have provided even higher returns in the past. For example, the average return of the Equity Savings Fund category over the last 3 and 5 years has been 8.67% and 8.67%, respectively.
Similarly, Hybrid Funds, like Balanced Advantage Funds, have delivered average returns of 11.25% and 12.69% over the past 3 and 5 years.
Flexi Cap Funds, from the Diversified Fund category, have posted average returns of 16.69% and 17.95% over the last 3 and 5 years. In fact, top-performing funds have provided even higher returns.
Doesn’t this data reassure you that these returns are achievable?
Important points to note
i.) Tax Benefits
Under the old tax regime, senior citizens were exempt from tax on income up to ₹3 lakh. In the new tax regime, this limit has been increased to ₹7 lakh. Therefore, if there are no new tax-saving investments or home loan installments, the new tax regime can prove to be more beneficial.
Additionally, for profits earned from hybrid and equity funds held for over a year, there is no tax on gains up to ₹1.25 lakh per financial year. For gains exceeding this amount, only a 12.5% tax is applicable, resulting in a relatively lower tax burden.
ii.) Inflation Protection
The income generated from investments should ideally exceed the average inflation rate (currently around 6% – 7%). This way, you can avoid the problem of insufficient funds for expenses. Therefore, investing in hybrid and equity funds becomes essential.
Investing in equity and hybrid funds, which typically outpace inflation, is crucial for maintaining your purchasing power over time. Diversifying investments across debt and equity instruments ensures steady growth.
iii.) Withdrawal Strategy
In mutual fund investments, you can withdraw money systematically through a Systematic Withdrawal Plan (SWP) based on your requirements.
By withdrawing smaller amounts, your corpus can last for a long time. You can increase the withdrawal amount in future years in line with inflation.
iv) Risk Tolerance
While a ₹1 lakh monthly pension is an attractive prospect, one should not take excessive risks by investing the entire retirement corpus in equity funds. As mentioned earlier, it’s important to diversify investments across different plans based on your risk tolerance.
Since mutual funds are taxed only on capital gains, the post-tax returns are likely to be higher compared to fixed deposits or bonds.
By carefully planning at a young age, you can enjoy a stable income that outpaces inflation, ensuring a happy and secure retirement.
Final Takeaway
Start planning early to ensure a secure and happy retirement. With smart investments in fixed deposits, debt mutual funds, hybrid funds, and equities, you can build a corpus that generates a monthly pension of ₹1 lakh.
By diversifying and staying disciplined, you’ll be prepared to outpace inflation and enjoy financial freedom in retirement. Start now!
