Retiring soon? How to split your PF and gratuity corpus between safe investments and mutual funds

Are you retiring soon and planning to deploy the PF and gratuity corpus to get a monthly income of Rs 1 lakh? Here is a little help on how to deploy the corpus offered by an expert, as reported by ETWealth.

With a retirement corpus of roughly Rs 1.15 crore, drawing Rs 1 lakh a month from this corpus alone is possible for some time, but it is unlikely to be inflation adjusted for life, said Ravi Kumar TV, Director, Gaining Ground Investment Services. “You should not put the entire corpus into income products.”

Kumar said that over a 30-35 year retirement, the bigger risks are inflation and longevity, not just income for today.

Kumar said that even if your current Rs 95 lakh from the PF grows at 8% for four years and with Rs 20 lakh gratuity, reaches around Rs 1.56 crore, a Rs 12 lakh annual withdrawal still means a high drawdown rate of about 10.4% on Rs 1.15 crore and 7.67% on Rs 1.56 crore.

The better approach is a bucket strategy: keep 35%-45% in safe income options such as the Senior Citizen Savings Scheme, Post Office MIS, and short-term debt or liquid funds to cover the next 2-3 years of expenses. Put 25%-35% in high-quality debt funds, and keep the remaining 25%-35% in growth-oriented investments such as balanced advantage or conservative hybrid funds. This provides stable cash flow today while helping the portfolio keep pace with inflation over time, the expert said.

Kumar said more realistic target from this corpus is about Rs 65,000 per month if the corpus stays near Rs 1.15 crore, and around Rs 87,000 per month if it reaches Rs 1.5 crore