Retirement planning

Retirement requires a corpus that can fund post-retirement expenses for 25-30 years. The NPS, EPF, PPF, and personal investments (mutual funds, real estate income) form the corpus. Annuities convert corpus to income. Goal-based planning sets a real-rupee monthly expense target, inflates it to retirement year, and back-calculates required corpus given a sustainable withdrawal rate (4-5%).

NPS: tier I (mandatory lock-in) gives 60% lump sum + 40% annuity at 60; tier II is liquid. Asset allocation choice (Active or Auto): equity max 75% under 50 years, glides down to 50% by 60. EPF: mandatory contribution 12% by employee + employer; tax-free withdrawals after 5+ years. PPF: ₹1.5 lakh/yr cap, 15-year maturity, EEE tax-free. Annuities: immediate (income from day 1), deferred (income later), joint-life (covers spouse), increasing (inflation-protected). Annuity yields are typically 5.5-7% — significantly below inflation, so partial annuitisation is often better than full.

A nuance: annuity vs systematic withdrawal. Annuities give certainty but lock in low yields. Systematic withdrawal from a balanced portfolio gives higher expected income but with sequence-of-returns risk. Mix: annuitise enough to cover essential expenses (food, healthcare, utilities); use SWP for discretionary spending. The optimal split depends on client risk capacity (some assets) and bequest motives (heirs benefit from SWP, not annuity). Indian retirees historically over-annuitise; RIAs should re-balance.