At one of the doctor conferences I met a well informed doctor who asked me “Subra I am planning to put Rs. 1.5 crores in xyz large cap fund, and Rs. 1.5 crores in a LIC annuity” will this be sufficient for my retirement.if I retire today (age 55) or say at age 65 years? My life style costs me about Rs. 100,000 now and my children have been provided for, and I have no dependents – my wife has a government pension. Her pension (when she retires about 15 years from now) should be good.

My reply:

Sir, a very well articulated question which ONLY a mature investor like you could have asked. This is perhaps the most intelligent question that I have been asked – by a doctor or anybody else.

Let us assume that at your age of 65 years your expenses are Rs. 200,000 per month. Your portfolio will yield say 5% p.a. post tax. That means you will get about Rs. 15L and your requirement is Rs. 24L per annum.

So the corpus is clearly not sufficient in the first year itself. I am assuming that Rs. 2L pm does not include any big and major repair to your house (or buying a new house) or car or any such expense. And if you assume inflation of about 10% it means your expenses at ages of 72, 79, 86, 93 and 99 (your wife will only be 92) will be Rs. 4, 8, 16 L per month. I am assuming that you will withdraw from the corpus at the age of 79 / 80. However, here you run the risk of living too long – what happens if your wife lives to 105? Luckily she has a pension.

To be on the safe side you will need Rs. 12 crores (safe harbor), and at least Rs 9 crores to be reasonably safe. I would still stick to a 5% post tax return target. This will give you a current income of Rs. 45L – and I would adjust your assets in such a way that you pay minimum taxes – you withdraw only Rs. 24L – and the remaining 21 is in growth mode.

As your wife is a very senior officer her pension will also be there to supplement the pension you get. Also as a doctor you may not retire completely at the age of 65. You could take on some juniors and work till say you are 75. This will mean that you will not start withdrawing from even the interest till you are 75 years of age. During this period of 20 years your portfolio would have grown well!

Anyway by investing in one large cap fund – like say Sensex you are missing out the mid-cap and small cap. I would suggest a Nifty next 50 also – for example if you put Rs. 1 cr in an index fund, and Rs. 50L in the mid-cap fund. This will diversify your investment better than being in just one fund of a large cap.

Yes putting money in an annuity is a good idea, but I would do it in tranches. Put Rs. 1 crores in a short fund. Put Rs. 50L in an annuity at the age of 62. Put the next tranche when you are 67, and the next Rs. 50L when you are 72 years of age.

You have more than enough money to retire – not because Rs.3 crores is a big amount, but the fact that you can work till you are 65 years of age. Your wife’s pension will help too.

PS: I have given him a 1000 word solution…but this is the essence..