My niece will have a corpus of ₹2.5 crore by September 2029, when she turns 27. Due to health issues, she does not wish to continue working after that. Assuming a 4% annual inflation rate, a bank fixed deposit (FD) return of 6% on the corpus, a life expectancy of 75 years, and monthly expenses of ₹65,000 in 2029, would this amount be sufficient to maintain her lifestyle? If not, how large a corpus does she need?

– Name withheld on request

It’s good to know that your niece will be able to put together a corpus of ₹2.5 crore by the time she intends to retire from active work. However, considering her health issues and the years that lie ahead, we might need to modify her current plan such that it meets her objectives and ensures a smooth retirement.

As of now, with her current corpus, inflation and fixed deposit assumptions, she will find it difficult to make the corpus last beyond the age of 70, so we need to plan a little. Also, future expenses generally tend to he higher than people expect. Her current plan of investing the entire corpus in a fixed deposit might not work out in the long run, so a more nuanced approach and diversified approach is required.

I would recommend the following allocation, considering we need monthly liquidity as well.

1) ₹1.5 crore in fixed deposits

At a 6% return, this will generate around ₹9 lakh of income. I would also advise you to negotiate with your bank and try and get a higher rate of return. Will a longer tenue, you could possibly get it up to 6.5%

To maximize your returns, you could also explore small saving bank deposits and spread the money amongst two to three banks to generate higher returns as these banks offer more than 7% and in some cases 8%. The government insures these deposits up to ₹5 lakh in case the bank defaults. With all of this, we can ensure a minimum return of 6.25% on this ₹1.5 crore.

Any amount left over can be invested in liquid funds as an emergency corpus.

2) ₹50 lakh in balanced advantage funds

This category of fund tries generate a return of around 9-10% a year with low volatility and downside risk. This will help increase our overall portfolio yield with low downside risk.

3) ₹50 lakh in diversified flexi cap equity funds

Considering her objectives, and that we don’t want to take on too much risk, the last ₹50 lakh can be invested in two to three flexi cap funds, which should yield anywhere from 10-12% over the long term, though they can be volatile in the short term.

Lastly, rebalance the portfolio every few years, putting gains from equities into fixed deposits. Also, ensure you have a good health insurance plan.

Vivek Banka is founder of GoalTeller.