Saving For Retirement

Rohit Raman
Blue Ant Advisory Services Private Limited

Saving for retirement is the most important thing you do with your money, and the earlier you do the least money it will require. While talking about retirement, a lot many people says that they will never retire. No matter what you say, after a certain age, world will start seeing you as old. If you are a gymnast at the age 18, if you are a cricketer at the age of 35 and if you are in a job, may be 58 or at some place may be till 65, if you are a professional you will have challenges in acquiring new skills after a certain age and you need to retire. It will certainly depend from person to person. I believe one should acquire good amount of money at a certain age so that his job or profession should not be a compulsion for them.

Till late 90s, people used to start working at the age of 25 and they used to work till 60 and the life expectancy was less, which means 35 years of working life and less number of years to live after retirement. But nowadays due to quality medical facilities, we tend to live more after retirement and the working life has reduced significantly, and believe me, old age without money is painful.

I feel that there are three ways to have very good retirement.
A. Your kids take care of you
B. Government should fund your retirement and
C. Fund your own retirement

In one of my education programmes, I have asked two questions to the participants:

a. List down 5 persons name who live along with their parents
b. List down 5 person's name who live in the house of their parents

The participants have two messages out of these two questions. One, if we have not stayed with our parents, then we should also not expect that our kids will be staying with us. I think none of us would like to be burden on our kids, they have their own wings. The second message was, for whom we are buying properties, chances are very high that our kids are not going to stay in that house so discussing and believing the our kids will take care of our retirement will be considered as a joke.

The general discussion of retirement planning happens for third reason: how much money one will need at retirement.

We all have 24 hours of time in a day, out of this, most of the people spend eight to ten hours at work and during work, you don't spend any money. On an average, we sleep for eight hours and during sleep, you don't spend any money. You spend money in only the remaining eight hours when you are with your family. After retirement, you will have more time to spend with your family because you need not spend 10 hours at work. So, I feel, after retirement, the cost of living is not going to reduce drastically, on the contrary it will increase.

Inflation and lifestyle will add fuel to the cost after retirement. It has been seen that every eight years, the cost of living will be double if lifestyle and inflation is added. Suppose a person is 30 years of age and he spends Rs. 50,000 in a month. So, at 38, his expenses will be Rs. 1,00,000 and at 46 Rs. 2,00,000, at 54 - Rs. 4,00,000 and at 62 - Rs. 8,00,000, at 70 Rs. 16,00,000 and at 78 - Rs. 32,00,000. It's simple maths and anyone can do this calculation.

Let's understand this with an example. If a person's expenditure is 50,000 every month, and it is expected that his monthly expenses will increase by 10% every year, then after one year, he will need Rs. 55,000 every month, and after 10 years, his monthly requirement will be approx. Rs. 1.2 lakh, and after 20 years, he will require Rs. 3.4 lakh each month, and 30 years down the line, his requirement will rise to Rs. 8 lakh and I consider that after retirement one will have max 30 to 35 years to live.

There are several ways to calculate the amount required to have a comfortable retirement for this individual and the most common one is to have 400 times of monthly expenses. To have a very comfortable retirement he will require a corpus of approx. Rs. 4 crore. I assume that he will start withdrawing Rs. 50,000 every month and it will increase by 10% every year and the investments will also give his a comfortable 10% return every year. I have considered that inflation and return from the investment will be the same.

These numbers are not to scare someone, and believe me, by just knowing the basics, you will be able to have a very good and comfortable retirement.

Saving for retirement is not enough, one also needs to invest. Saving will never be able to create the required retirement corpus, investing will. I strongly recommend investing in equities (quality stocks and mutual funds) which have a strong track record. These instruments have the power to create wealth, and in the longer run, these will certainly generate returns which will be greater than inflation. One caution, equity is a volatile product and one needs to understand this properly. The growth chart will not be in a straight line.

Where to invest the retirement corpus will depend upon individual's risk appetite. I strongly believe that an individual does the investments on the basis of emotions, not on the basis of data or facts. There cannot be one straight line investing solution for saving for retirement. An individual needs to select the products carefully. Investing for retirement is a journey and for a very comfortable journey, one needs to start early.

For more information contact : Rohit Raman, Blue Ant Advisory Services Private Limited 
Email: rohit@blueantindia