This Diwali, for most people in their 50s, the conversation centred around retirement. The moot point of discussion was ‘how much is enough’ to retire. It is a topic of discussion among the upper-middle-class and middle-class people. For a long time, Rs 3-4 crore was considered a safe amount. However, many conversations are drifting higher towards the Rs 10 crore mark. These are primarily the upper-middle-income households. There is a significant increase in lifestyle-related expenditures among wealthy households. Many top executives in their 50s want to maintain the ‘lifestyle’ momentum well into their 60s.
A lot of estimation is based on thumb rules. For example, you can withdraw 4% of your retirement corpus each year without depleting your corpus. The other one concerns the inflation assumption and the compounded annual growth rate of the investment return. The average inflation rate is assumed to be 6% for the foreseeable future, and the average return is set at 10-11% per annum. Most of you want more money in your hands to live the life you wish to live with your hard-earned savings and investments.
There are many assumptions made in such ‘guesstimates’. It assumes no significant ailment or sickness. There is an assumption that once you start to dip into the retirement money, there will be no liabilities. Hence, the expenses are only about lifestyle spending. There is no assumption of any investment that could continue post-retirement.
People who are most likely to reach a retirement corpus of Rs 10 crore or more are already there in significant numbers. These are folks who are well-off. We are not talking about the rich or wealthy. We are talking about high-income middle-class households. They have high-paying jobs or own small businesses, no significant responsibilities, and have paid off their home loans or major liabilities, or have none in their 50s. They already have an active and a passive investment portfolio that is generating a steady rate of return. They have more than adequate life and health insurance. Such people are also likely to inherit wealth. These people can multiply their wealth at a faster clip, too. If you are in that category, you must work closely with your financial advisor and make appropriate asset allocation decisions. Get a sense of your risk appetite, your current expenditure, and allocate more money to your investments. You have the ability to aim higher.
The other group belongs to the middle class. These are a dominant category of households: salaried, in government services or the private sector, or with a small business. The Rs 3-4 crore target corpus may or may not be sufficient given the current situation. Home loan liabilities have grown faster than the income of the salaried. There is also an increase in the use of borrowing to fund lifestyle expenditure. A classic indicator is the surge in credit-card outstandings. The RBI data indicate that personal loans for expenditure rose significantly over the past two years. While these are short-term loans, they are in addition to the home loans. Many consumer companies have spoken about the drop in urban consumption. The relief the government has provided through income tax and goods and services tax cuts is due to tight household financial conditions in urban areas.
If you are in your 50s and going through tight money conditions, you are likely to save far less than you aim for your retirement. If you can save more money as a result, the solution is not less investment but more investment for the long term. It is even better to get a sense of your assets and liabilities, and work with a financial advisor to expand the scope of your investments if you wish to maintain your lifestyle after you retire and strike a balance in your finances.
