There is a lot of hype around building a retirement income these days and there are a plethora of schemes shoved down the throat of gullible senior citizens.
But I think, the panic is really unnecessary if you plan your investment vehicle right.
I am sharing with you a secret that I worked out, which is in fact, pretty simple, but somehow ignored or hidden from common knowledge.
This secret can also be used by younger people who want to generate a second passive income in addition to their regular income.
Here’s the PLAN:
- First you decide on the amount you require every month. Let’s say the amount is x.
- Secondly, you calculate the corpus required to be invested and generate a monthly income. You just multiply it by 75 which will be 75x. It’s pretty straightforward, isn’t it?
- Thirdly, you decide on your risk profile and accordingly select a diversified / large cap fund.
- Fourthly, set up a SWP (Systematic Withdrawal Plan) with the selected fund such that you are withdrawing amount x every month.
- Please remember, for tax efficiency, it is better to start withdrawing after one year of investment.
Let me illustrate the above plan.
1. Let’s say you want Rs. 50,000 every month
2. The corpus required to generate this income is 75x which means 75 x 50000 which is Rs 37,50,000/-
3. Now we invest this amount into a diversified mutual fund scheme
4. Next, we set up a Systematic Withdrawal Plan from the above scheme to withdraw Rs 50,000 every month.
5. For the purpose of tax efficiency, it is better to wait for one year before starting the withdrawal.
If you had implemented this plan in July 1997 in FT Prima Fund and started withdrawing Rs 50000/- in the same month, you would have withdrawn Rs. 1,20,00,000/- over 240 months till July 2017.
Your current fund value after deducting your withdrawals would still be Rs 10,30,29,722/- giving you a compounded annualized return of 25.41%
These figures given above are the real historical performance of the fund.
This is phenomenal, mind-blowing stuff.
If you are prepared to wait for at least 5 years before you start withdrawing, this plan can be implemented with 50x also.
This arrangement should comfortably give you an income of x amount for 20 years or more from the start of your SWP. If you want to extend this tenure to say 25 or 30 years, you could just increase the corpus to 100x or maybe wait for 5-7 years before starting your SWP.
Does this sound too good to be true?
Write to me. Let me know your thoughts.
Contact me for your Retirement Planning or Residual Income Planning.