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Wednesday, October 17, 2012

Can your assets support your for next 30 yrs

Can your assets support your for next 30 yrs 

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If you have Rs 50 lacs with you and you want to generate some consistent income for next many years, how many years you can generate income? Think about it! Put some very high level calculations in your mind and try to come up with some numbers! . Will it be able to generate a lac of monthly income for next 10 years or not? Will it be able to generate Rs 30,000 of inflation adjusted income every year for next 30 years or not? Will it be able to generate Rs 30,000 of income increasing at 5% each year for next 100 years or not?
Still wondering ? 
Lets discuss a very basic problem which many people face in financial life. A lot of people at times have a big lump sum amount like 20 lacs, 50 lacs or say a crore! Now they want to know how much income can be generated using that big amount which can be used by their family. This can happen in many situations like following
1. When a person wants to make sure that he wants some kind of passive income out of a big chunk of money
2. A person might have got retired and now he wants to create a pension for himself using the big amount of money he/she has saved
3.  A person wants to leave his job and because of uncertain future , he wants to utilize a big sum to generate a certain cash flow in future
4. You might want to find out how much of life insurance you should take so that your family can start getting monthly income by making a fixed deposit out of the money.

So lets take case of Rs 50 lacs ?

Coming back to our example - Let’s talk about Rs 50 lacs. How much monthly income can it generate? And for how many years? This will depend on three things.
  • How much inflation you are considering
  • How much return on the investment you are considering
  • How much monthly income your want to generate per month
Here are some of the permutations and combinations assuming different values for Inflation , Return on investment and monthly expenses needed and a corpus of Rs 50 lacs in hand.
How long the money will last

 

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