By Priyanka Sambhav
Are we not planning enough for our retirement? PGIM Mutual Funds’ Retirement Readiness Survey 2020′ tells us that that retirement planning is low on urban Indian’s priority list. An expensive holiday, children’s higher education, their marriage or even festival shopping gets priority over retirement saving.
The Retirement Readiness survey interviewed 3103 participants between the age of 26-60 in 15 cities and found that 51% of them had no retirement plan whatsoever, and 49% had a retirement plan. But those who did plan their finances for old age depended on life insurance and bank FD’s. 41% of people surveyed focused their retirement investments on life insurance, while 37% preferred fixed deposits. Those who planned their retirement heavily depended upon a conservative instrument of saving with minimum risk. Other retirement investments included health insurance gold, recurring deposits, POSS, NSC/ NSS and property. But the share of this investment was less as compared to life insurance and FD’s.
The survey also found that people are spending 59% of their income on current expenses. Another disturbing finding is that people are confused about the corpus that they would need for their retirement, and when they are calculating it, they are not considering inflation. Most felt that they would need around Rs 50 Lakh for retirement. So think if they retire after 30 years and assuming 5% inflation, so in 30 years Rs 50 lakh will be worth Rs 11.57 lakh only.
The survey also tells us that urban Indians are spending around 59% of income on current expenses, and saving and investment are taking a back seat.
After going through this survey if you have started thinking about retirement planning, then take these 3 steps and get started.
1)Think and figure out the age at which you want to retire. Consider this as the initial groundwork for an effective strategy. Once you know your time horizon, you will know what kind of investment and the level of risk that you can take on your investment.
2) Determine the kind of money you will need to live a comfortable life after retirement. You need to plan for more than what you need. Do not forget that inflation will be eating into your savings.
3) Financial adviser William Bengen in 1994 introduced the concept of 4% rule. According to him, a retiree corpus if calculated on 4% rule would create a paycheck that could last for 30 years. A person can outlive the funds that he has saved if his investment portfolio of 50% equity and 50% bond is such that he needs to withdraw 4% of it annually to fulfil his expenses. It may not be perfect, but we know the corpus and our costs we can draw a plan based on this principle. Let’s say that you assess that you would need Rs 1 lakh n a month for your expenses so in that case, your investment corpus should be of Rs 3 crore.
