Building a portfolio for your retirement!

Retirement, pension andinvestment!

Very few of us truly understand the value of an indexed pension, which essentially means that the pension amount is linked to the inflation and is raised by a similar amount every year. The current generation of retired government employees (or soon retiring)would be enjoying this indexed pension.

However, the private sector does not usually give the benefit of this pension to its employees. Also, the government has stopped the indexed pension scheme for newjoiners.Unfortunately, most of us do not understand the financial implication of the same in our future lives.

Let us first understand thevalue of an indexed pension.

If a person retires today at 60 years of age withRs. 25,000/month of indexed pension, and lives till 90 years, what will be total money paid to him by the government (assuming retired government employee). Let us assume an average inflation of 9% for next 30 years also assume that the pension amount is raised by 9% every year. In such ascenario, the total money paid to the employee in 30 years of retired life would amount toRs. 4.1 crore!!!And you thought Rs. 25,000 per month is a small amount! If the starting pension amount isRs. 40,000/month, the total payout comes to Rs. 6.5 crores.

If you are going to retire in 10 years time, and want Rs. 1 lakh/month of indexed pension for 30 years, the total payout comes out to be Rs. 16 crores.

Unfortunately, most of us working in the private sector would not have the benefit of such a pension.

Over and above the pension, most of us would have to pay for our medical expenses from 60-90 years of age. Assuming 2 cataract surgeries, 1 hernia surgery, 1 prostate surgery, 30 years of routine medicine, tests and check ups, 5 hospital admissions for infections, and one organ transplant/cancer/major illness in a corporate hospital,**the total cost in todayâs money would be roughly Rs.1-2 crores.If you are going to retire in 10-15 years of time, with no medical cover, assuming aninflation of 6% in medical expenses for next 40 years, the total amount would be somewhere around Rs. 10-20 crores for one person.**You can add Rs. 5-10 crore for your spouse.

Some of you may argue that not everyone would need an organ transplant. However, medical technology will advance a lot in next 25 years, leading to many newer and expensive treatments, which would improve your longevity, but at a high price. A longer life will also mean more medical treatment and surgical procedures than your parents. There were almost nil liver transplants 20 years ago in India, whilehundredsare performed every year today. An artificial heart transplant today costs more than a crore, while liver transplant costs 20-30 lakhs, not including the cost of medicines for the rest of life. Who knows in 20-30 years time, you may get any organ produced artificially in 50 lakhs to 2 crores!

These may seem mind boggling numbers to some of you. However, they are not! Rs. 1 crore would be a relatively small amount 30 years from now. What was the value of Rs. 1 lakh in 1980, and what is the value today?

This brings us to the most important question. How do you plan for your retirement? Any answers?

Be 100% invested in good quality companies fulfilling only 2 criteria

  1. Cos with Ethical promoters

  2. Cos with good growth.

All the concerns will be automatically taken care.

For rest of the non risky players immly invest in Tax free bonds @ 7-8.5% for 15 to 20 years.No more issuance of these bonds.Thanks to that nincompoop of a FM N now President one can hv the luxury of investing in these bonds.

Very pertinent points. Most of us are not even thinking of it. It is just 5 years back I started doing something about it. My strategy for retirement is below. I will try to achieve this by the time I am 50(next 5 years).

  1. Pay off all your loans
  2. Build a medical emergency fund
  3. Build a stock portfolio which pays dividend equal to your annual expense. For example if your expenses are 50K per month then you need a portfolio of 4 crores(@1.5% average yield which gives 6 lakhs per year).
  4. Most importantly build your stock picking skills and continue your investing journey.** Good news is that India is in a sweet spot and also there is no retirement in investing.**

Medical expenses are very going to be very big in future and one need to be take it very seriously. I know my targets are somewhat aggressive, but one need to be aggressive on such targets else, it will never happen.

raj, that looks like a plan.

key is to generate 4 cr corpus to retire @ 50k monthly expenses. Considering inflation 50k may be too little after 5 years even in cities like banguluru and hyderabad. medical expenses (not the emergency fund) alone will eat atleast 10% of the monthly expenses.

apart from equity, i think rental income of 20k per month will be cool, to get that we need to buy flat for 60-80 lakhs


I agree with you that 50K may not be sufficient after 5 years due to inflation, so one has to reassess the situation when you reach there. Right now this is the target for me. If you don’t have any emi to pay, and no expenses of Kid’s eduaction…one should be very comfortable with 50K at this moment.

The rental yields are between 2-3%, hence I wouldn’t put any money in a second house. My wife will certainly not like this idea :). I would rather invest in companies with 2% yield and growing at 20%.

Medical expenses will be bigger for sure in future and hope some kind of medical insurance should take care of it.



Hi Raj,

No medical insure will fund your medical expenses in India after the age of 60, unless it is govt. sponsored like CGHS etc.

If someone plans to retire 10 years from now, he/she should be planning for 1lac pension per month(variable according to individual needs), increasing by atleast 6-7% every year for 30 years.


Thanks Doc.

Medical costs are definitely a problem area. It’s rising very fast and one need to keep enough once you don’t have a regular income.

I agree 1 lakh per month is required 10 years from now. In that case one needs a corpus of 8 crores for a cash flow of 12 lakhs (@1.5% dividend yield).



raj, rental yield of 2-3% is too low. its like buying a flat for 1 cr and getting a monthly rent of 8.5 k. i dont know about banguluru, but here in hyderabad you can expect monthly rent of 10k on flat of 35 lakhs. but anyway you wont get 20% annual appreciation

i am looking for a debt component to generate part of that 50k. like ppf, rentals etc


For 1 crore house 2% yield means 200,000/- per annum which means around 16K per month. Where I live a 90 lakh house can yield you around 2.4 lakh rental income which is around 2.5% yield.

*Getting 10K for 35 Lakh home is a good return. The return here is [(10000*12)/(3500000)]100 = 3.42%.

The expectation of 20% annual appreciation if at all is there should be sign of a bubble in property market as ideally it should match only inflation rate.

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