There are two distinct phases in an individual’s financial lifecycle.

The first being the earning and wealth creating phase, and the second, the wealth reaping and distribution phase.

Having discussed the first phase in Grow your own money tree, let us now dwell on the second phase, to help you build retirement and estate planning strategies.

Most people in the second phase seem to have one question on their minds: How can I get a steady rate of income year after year from a safe instrument?

This is a pretty shallow way of looking at it, and can get you only shallow answers.

Let me illustrate:

An annuity product gives you a steady income for as long as you live, and your family gets a big packet of money should you pass away. Suppose you need Rs 25,000 pm to survive comfortably, this means you would have to invest around Rs 50 lakh (around 6%).

So where’s the problem?

• Inflation: After 10 years, Rs 25,000 will be worth only about Rs 15,000, allowing for 5% inflation.

This means an increased income stream, depending on your lifestyle and needs.

• Emergencies: You may urgently need funds, or help your children or friend, or just take quick advantage of an opportunity.

          But your money is locked – if you withdraw, your cash inflows will stop, and if you re-deploy afterwards, you may not get the earlier rate of return.

• Funds: What if you need Rs 25,000 to survive, but don’t have a Rs 50 lakh corpus to begin with?

Moral of the story: not a single retirement/ pension product available today is remotely close to meeting your requirements!

What should you do?

First off, you should know for how many years your funds will survive. You don’t want to be in a situation where at 70-80+, you have outlived your resources, and have to worry about how you can manage now.

Also, have your advisor create an increasing income stream for you – the increase being at least in line with inflation rate.