I am 56 years, employed in a general insurance company and drawing Rs 45,000 a month. My wife is a homemaker, aged 53. I have a son and daughter who are not dependent on me.

I have not opted for a pension scheme with my employer. I will retire in 2015 and my expected retirement benefit could be around Rs 35 lakh. I own a 3BHK flat on which the outstanding loan is Rs 3 lakh. I wish to close the loan before my retirement. My monthly household expenses are Rs 20,000.

My investments are as under:
My MF equity investments are: Reliance Regular Saving Fund (equity) - Rs 1 lakh, Reliance Regular Saving Fund (equity balanced) - Rs 1.50 lakh, Birla Frontline Equity - Rs 40,000, Birla Dividend Yield - Rs 20,000 and ICICI Pru Focussed Equity - Rs 65,000.

My debt investments are ICICI Pru MIP- Rs 1 lakh and Reliance Short Term Fund - Rs 2 lakh. I have opted for systematic transfer plan of Rs 5,000 a week in Reliance Regular Saving Equity Balanced fund and Rs 1,000 in Birla Frontline Equity.

At times I switch from equity to debt when I feel the market is peaking. But my judgment often goes wrong.

As I am closer to retirement, suggest a suitable investment plan for my retirement needs. I expect my life expectancy to be 80.

Gautam.
(Name changed on request).

Solutions
While deploying the retirement benefits one should not only worry about the interest rate but also ensure safety of the investment. In most financial instruments safety or guarantee comes at the cost of returns. Retirees should therefore address liquidity, safety and tax-efficiency of the investment.

As your retirement corpus is not going to be adequate you should deploy your receipts more judiciously. On receiving the retirement benefits you can invest the entire corpus in debt investment in the ratio of 30:25:20:25 in the order of senior citizen saving scheme, post office monthly income scheme, corporate deposit and bank deposits respectively or go for an immediate annuity plan based on the interest rate regime prevailing then.

Currently there are few immediate annuity plans that offer a guaranteed return of 7.5% per annum throughout the lifetime of a person and return of initial investment to the nominee. With this investment strategy your debt instruments can earn a return of 8% comfortably.

But to maintain current standard of living at any given point in time your money should earn at least 2% interest higher than inflation to sail comfortable till the age of 79. However, this is easier said than done especially if inflation rates end up moving to a new normal - higher than historic levels. To counter-balance the short fall in income and keep your money growing you should stay invested in your current mutual fund equity investments of Rs 5.75 lakh till the age of 76 and ensure that it provides an annualized 12% return till you withdraw the entire corpus.

There is no set rule that retirees should not invest in equity. As long as you have risk appetite and ability to withstand short-term capital loss you can invest in equity at any age. But it is better to restrict the equity exposure to 10-20% of the portfolio.

Managing equity funds
While computing (see table) we have observed that post-retirement if you invest your retirement corpus at 8%, after adjusting for an inflation assumed to be 6%, your income will match the expense for the first 4 years (the first few years` excess can be used to offset future shortfall).The first shortfall would surface only in the fifth year (at the age of 65).

To meet the shortfall we suggest you to withdraw Rs 3 lakh from mutual funds to manage the shortfall over the next five years and deploy the same in the debt instruments and allow the rest to grow in equity. Once you have exhausted your savings, you may once again withdraw the appreciation in equity in advance for the next three years. However, note that markets may well fall sharply coinciding with your withdrawal. Hence, any sharp appreciation in your portfolio should be swept in to cash when you notice it; you need not wait for your savings to be exhausted to dip in to the paper profits.

Despite following this strategy you will face a shortfall in income at the age of 80. If you happen to live beyond your expectancy withdraw the capital invested in the equity schemes to take care of you monthly requirement for the next four years. If you and your spouse happen to live beyond 84, you can opt for reverse mortgage or alternatively sell your house and buy immediate annuity suiting your requirement if you prefer not to bother your children.

Current portfolio
The funds in your portfolio are performing well. However, we would recommend switching your investment in Reliance Regular Saving Equity (an aggressive fund), Reliance Saving Equity (balanced) and ICICI Focused to consistent performing funds such as HDFC Top 200 and DSPBR Equity. As your current investment in equity schemes is only Rs 5.75 lakh, we recommend that you hold not more than 4 equity schemes in your portfolio.

Health insurance
Your living expenses in retirement can be curtailed to some extent but expenses such as healthcare may be beyond your control. As you are in the insurance industry, we presume that you would have taken adequate care to buy health insurance.
To manage your health insurance premium and to create emergency corpus you can substitute ICICI Pru MIP with debt instruments that pays a regular annual interest.