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How does one plan for a monthly income?
A case study
However, this plan has a fundamental flaw. It fails to take into account the change in Mr. Kumar's risk profile over the investment tenure. The plan assumes that Mr. Kumar can take on the same degree of risk even when he is nearing the target date. This may not be the case; in fact, as the corpus grows over a period of time, it would be prudent to expose the savings to a lower degree of risk. Hence, we shall incorporate an element of debt in the portfolio. The debt component will account for 50% and 75% of the investments in years 4 and 5 respectively. Considering that the debt portfolio is likely to yield a return of around 7% per annum, the investment amount will have to be revised. In line with the new investment plan, the monthly investment will increase from the earlier sum of Rs 35,481 to Rs 57,297.
As in most cases, our view was that the investment process would have been easier (read lower investment) for Mr. Kumar, had he approached us earlier i.e. if he had more time on hand.
A similar investment process can also be undertaken for individuals who wish to plan for their post-retirement needs. As stated earlier, the degree of ease with which the targets are achieved will largely be determined by the time available. It is possible for individuals to ensure that they have a stable income stream even after their working life. All it takes is sound planning and a disciplined investment approach; a good financial planner will help you achieve both the aforementioned.
If you haven't employed the services of a financial planner as yet, now is the time to do it!
personalfn.com is focused on providing research-backed personalised financial planning services.
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