Many would like to evaluate their retirement options, plans for retirement are usually based on building a corpus that when invested in a bank deposit can reasonably sustain their life style and take care of inflation. This is a good plan but for a key challenge – the amount needed is significant as the interest rates are usually modest. This means delaying retirement to accumulate the corpus.
An alternate way for retirement planning is to have a mix of debt and equity. One could deposit the funds required for the next five years into a bank and the remaining can be invested in an Index fund or Index ETF. Every year one could withdraw funds invested in the Index so that the bank deposit continues to have funds for the next 5 years and the Index fund has the rest. This approach can reduce the initial corpus required by 20% to 35%. This scenario is not risk free but as the funds required for the next 5 years are in a more liquid product hence the risks are fairly hedged.
This strategy can also be adopted by people who are already retired to increase the number of retirement years their corpus can support. This strategy can increase the duration by 20% to 35%.
Making your money work for you will reduce the onus on you to create all the wealth, or will help your wealth last longer.