Try Google for an answer and you will get a million articles and a zillion calculators trying to answer this question (on retirement). There are answers at two extremes of the spectrum – imagine one calculator tells you that the need is for Rs 13.25 crore and the other calculator saying you need Rs 7.6 crore! Which one would you believe? Why? Welcome to the world of finance and psychology.
To catch your attention, it is necessary for me to say ‘One Million Dollars is not sufficient for retirement’ – this is bound to catch your attention. Now that I have your attention, I need to scare you so much that you will take action! Now a movie which shows that the son is treating the father badly has to show the son slapping the father. Just shouting has no impact, correct? So, the financial media also has to exaggerate - at least a little.
The financial services industry has to compete with all other advertisements which encourage IMMEDIATE consumption. Amongst all this, asking you to save / invest for your old age becomes somebody else’s job! Pity the planner who is trying to ask you to postpone your expenses to your age of 60! All the money that you invest will grow and be available for you to spend – after a little time that is all.
Also, calculators should ask your current age, retirment age, do you want to leave a corpus for your children, how long you think you will live, and many other questions. People designing calculators have to fight with the editorial team which keeps saying ‘people will not answer 34 questions, please reduce the number of questions’ pressure! Retirement calculators are very difficult to design – you do not find any Indian calculator telling you how to withdraw during retirement.
This is another big gap – and is really a tough call for the 75-year-old to decide whether to spend well for the next 5 years or worry whether he will run out of money at 88 years– and then what happens. Some calculators are comprehensive. Also, even interactive websites can only have static calculators – which means you need to keep checking regularly with various values to ensure that you do not run out of money. For most Indians ‘Reverse Mortgage’ has a negative connotation.
The financial services industry would like you to believe that you need a king’s ransom to retire – so that you invest large amounts of money! If you are caught in all this paradox, there is really only one weapon – get better equipped to deal with so many advertisers, writers, financial planners, agents and television experts. Like so many things in life, Retirement Planning is also nice to do it yourself and seek outside help from an expert instead of just handing it over and hoping it will turn out fine. In retirement it may mean running out of money exactly when your need is highest.
PV Subramanyam
writes at www.subramoney.com and has authored the best seller ‘Retire
Rich - Invest C40 a day’