Owning a house, investing in property and building a sizeable retirement corpus may seem like a recipe for financial security. But what happens when the salary stops and the monthly bills keep coming?
For many retirees, the problem is not a lack of wealth. It is a lack of regular income.
This is the risk of being asset rich but cash poor. A person may own a valuable house, land or other investments but still struggle to pay for groceries, medical bills and everyday expenses. The wealth exists on paper, but turning it into cash when needed may not always be easy.
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Selling a house is not necessarily a practical solution. It could mean leaving a family home or selling an asset at an unfavourable time. And while property can contribute significantly to a person's net worth, it does not automatically generate the monthly income needed to sustain retirement.
The challenge, therefore, is not just building wealth but ensuring that it can support everyday expenses after retirement.
Ashok Manwani, Vice President of Products at Go Digit Life Insurance, told NDTV that a retirement corpus may look adequate at the beginning, but its real value depends on how effectively it can meet expenses over the years.
Why A Big Retirement Corpus May Not Be Enough
Retirement can last 20 to 30 years, particularly as life expectancy increases and healthcare improves. This makes it important to ensure that savings last as long as the retiree needs them.
Inflation adds to the challenge. Household expenses and healthcare costs can rise significantly over a long retirement, reducing the purchasing power of a fixed income.
Consider a monthly household expense of Rs 50,000 today. Assuming annual inflation of 7 per cent, the same expenses could cost around Rs 1.93 lakh a month after 20 years. That means retirees need to plan not only for their current expenses but also for how much those expenses could rise in the future.
A large retirement corpus can provide a sense of comfort. However, if it is not structured to generate regular income, retirees may have to dip into their savings to meet routine expenses. Over time, this could put pressure on the money meant to support them through their later years.
Manwani points out that retirement planning involves two distinct stages: accumulating wealth during one's working years and converting that wealth into a dependable income stream after regular employment income stops.
The second stage often receives less attention, even though it can determine how comfortably a person lives in retirement.
How Annuity Plans Can Help
One way to address the income gap is through annuity plans. These products allow individuals to use their accumulated savings to secure a stream of income, depending on the plan and its terms.
For retirees who want greater predictability, an annuity can help cover essential expenses without relying entirely on withdrawals from their investment portfolio. The choice of product, however, should depend on the individual's financial needs, risk appetite, liquidity requirements and other sources of income.
For couples, a joint-life annuity may offer an additional layer of protection. Under such an arrangement, income can continue to the surviving spouse after the first policyholder dies, subject to the chosen option's terms. This can help reduce the risk of the surviving partner being left without a dependable income source.
Manwani stresses that retirement security should be measured by more than the total value of assets accumulated. The ability to generate income consistently is equally important, particularly when salary income is no longer available.
Ultimately, retirement planning needs to go beyond accumulating property, investments and savings. It must also account for the regular expenses that continue long after employment ends. Being wealthy on paper may offer little comfort if there is not enough cash to pay the bills. A well-planned retirement strategy should therefore focus on both the size of the corpus and the income it can generate.