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Once you have built a large corpus for retirement, how do you invest it to provide for a good two-three decades of life? For those who seek early retirement, the time span is even longer. To solve this problem, Mahesh L., 47, a Bengaluru-based IT professional, followed the “bucket approach" suggested by his financial planner Deepesh Mehta, founder and CEO, Grow Wealth.
In 2014, at age 42, Mahesh began to seriously consider early retirement. He had spent more than two decades working in India’s booming IT industry with a multinational company. However, he was tired of the monotony of work and wanted to focus on his passions, yoga and badminton, and on having a healthier lifestyle.
He met Mehta in 2008 and gradually got used to investing in mutual funds while working with him. “I always saved a huge portion of my salary, but in the early years, I would just put the money in fixed deposits (FDs)," he said.
A series of conversations and an early retirement plan put together by Mehta allowed Mahesh to actually put in his papers in 2018. Mahesh is now 47, two years into his early retirement.
Mahesh has all his retirement years in front of him and also needs a financial plan for his two daughters. His wife Sunitha Mahesh, 42, is a school teacher.
Mehta has invested his retirement corpus in what he calls the “five-bucket plan". Mahesh’s emergency corpus sits in the first bucket. It contains two years of monthly expenses and it is not drawn down except in emergencies.
The third bucket kicks in from the fourth to the sixth year of retirement. It is invested in arbitrage funds, ultra short-term funds, low-duration funds and medium-term funds.
For the fourth bucket, running from the seventh to 10th years, Mehta has prescribed balanced advantage funds and the fifth and final bucket is into equities consisting of large-cap, equity-oriented hybrid, multi-cap and mid-cap funds.
Overall, the plan provides resources for Mahesh and his wife till they reach the age of 90. There is also sufficient corpus available for the numerous holidays, including foreign holidays, that Mahesh has planned in the years to come.
For Mahesh’s daughters, there are separate buckets altogether. For the older daughter aged 14, the bucket has equity and debt to finance her higher education, which will come up in a few years. For the younger daughter, the investment bucket has equities, considering the much longer time frame available.
His only regret is that he has been unable to conduct his yoga classes because of the pandemic. “This is a social service. I don’t do them to earn a living," he added.
There are several approaches to retirement planning. For example you can simply decide to withdraw a specific amount from your savings every year and increase the amount every year to adjust for inflation. The bucket approach goes one level deeper, segregating the portfolio according to the time of withdrawal. But seek professional help if it appeals to you.
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