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How much do you need to fund your living expenses after retirement? | Business Matters
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- Опубликовано: 14 авг 2024
- This episode has little to do with either business or macroeconomics but we chose this topic because it touches all our lives - yours, your parents’ or if you are young enough, then your grandparents’ lives too. We try and answer the question - how much do you need to fund your living expenses after retirement?
If you are not a government servant assured of a pension, you are probably saving up while you work, investing in stocks, mutual funds, maybe gold, a roof above your head, and so on. Once you retire, you will have to dip into these savings and investments every year.
Historically, various analyses have said withdrawing 4% of your retirement corpus in the first year and then bumping up that percentage slightly every year thereafter could give you enough to live on till the end of your life. But for a country like India, and with current inflation and estimated average longevity, is that enough?
Globally, withdrawing a certain part of your retirement corpus, starting with 4% in the 1st year, would make your funds last you about 30 years. So, if you retire at 60, and expect to live till 90, then you are all set.
A recent research paper by Rajan Raju and Ravi Saraogi showed how the global standard can’t be used in the India context.
The authors argue that while criticism has been aplenty on how the 4% figure applicable in the US context is unsuitable elsewhere, there has been little to show what exactly the ideal number for India would be.
Their research concludes that even a withdrawal rate of 3.5% for an Indian citizen is bound to fail over 35 years - and obviously, they warn that if your portfolio of savings includes too much investment in equity, it could potentially give you healthy returns, but Indian markets are so volatile that you could also end up losing capital. And if you are heavily dependent on fixed deposits, then the returns could be too low, given the tax implications and the effect of relatively high inflation.
The authors of the paper say that a rate of 3-3.5% is more sustainable for the Indian context and that they’d likely stick with the 3% referred to earlier in this episode to be on the conservative side.
Did you know
The first savings bank in India was established in Calcutta in 1833-34 by the government, according to the National Savings Institute. However, the government Savings Bank Act was passed in 1873, and it was in 1882 that the Post Office Savings Bank of India came into existence.
Last week’s quiz
And for the quiz question of last week, Why do countries want to export more and more and why not settle for the domestic market, we received several well thought answers. Thank you all, for the respect you accorded us. And many of you got it absolutely right. The most obvious part of the answer is why would we not go and get a bigger market for our companies? If there is money to be made, let’s make it.
The other important part of the answer is to be able to earn foreign exchange to support our imports. There are things critical to our existence that we are dependent on the outside world for. For example, we import a lot of active pharmaceutical ingredients or APIs to make our medicines, from the simple paracetamol to life-saving drugs. 85% of our oil needs come from imported crude oil. We need to have a stock of foreign exchange to fund our imports and exports help us earn this forex. Exports help bring down the trade deficit that has an impact on our current account. When we have a lower deficit or even a surplus that is favourable for the rupee against other currencies such as the US Dollar. That makes our imports cheaper.
Quiz question for this week
What was the interest rate offered by the first savings bank account offered by the government in 1833-34?
00:00 - 00:25 - Intro
00:26 - 01:39 - Withdrawing from retirement corpus
01:40 - 03:15 - Findings of research paper by SSRN
03:16 - 19:41 - Interview with Businessline’s Aarthi Krishnan
19.42 - 20:19 - What is indexation?
20:20 - 20:41 - Did you know?
20:42 - 20:50 - This week’s question
20:51 - 22:07 - Last week’s question
Links: www.thehindubu...
www.thehindubu...
Script and presentation: K Bharat Kumar
Production: Shibu Narayan
Retirement becomes truly fulfilling when you posses two essential elements: ample financial resources and a meaningful purpose in life. Make prudent investment choices to secure goof returns and ensure a comfortable retirement.
Rising prices have affected my intention of retiring at 62, working part-time, and building my savings. I'm worried about whether individuals who weathered the 2008 financial crisis found it less challenging than my current situation. The stock market's volatility, coupled with a reduced income, is making me anxious about having enough for retirement
You should contribute to your retirement diligently, or better still look into financial planning don't come to youtube for advise, consult a Local or trusted online broker/ planner
Very true, I find myself lucky enough exposed to money management at an early age. Worked full time when I was 19, purchased first home at 28 fact forward timo I'm 57 now not laid off
This is huge! would love to grow my reserve regardless of the economy situation, my 407k has lost everything accrued since early 2019, at this point, i'm in need of guidance, can you point me?
Nathan Travis C00k
I think the 3 bucket approach is a much better retirement plan. Unfortunately, it was not even mentioned.
Stop giving inflated numbers. Stop frightening people. Nobody needs 46 lakhs per year to survive. It is more than enough for at least 5 years for abretired person.
After 35 years he is saying. Which seems to be correct considering 6% inflation.
Manoji what she is saying is absolutely correct.
Just think 30 years back the monthly expenses used to be 3000 or 4000, but now you require 40000 to 50000 per month
@@JustChill76an average mid age person salary in early 90s is nothing less than 7000 rs per month. Inflation for basic necessities highly exaggerated in our country
@@JustChill76it’s even lesser. High salary 30 years back used to be ₹3-4K. And expenses were only ₹1.5k for good living. It’s now ₹40k. So it’s 27 times up now. 27x in 30 years
In a high inflation country like India, it is very difficult to save enough to make a corpus where a withdrawal rate of 4 percent will see us through.
The government needs to be responsible about bringing down it's expense, if it wants to bring down inflation
In a high inflation, your returns are also inline with high inflation. Your increments or business growth is also inline with inflation.
articulate,precise,liberal tax slabs required for retirees.
Imagine being a certain age and noticing the funds you have left will last one more year
Your guest Ms. Aarati Krishnan has really done some good maths and explained it in a logical manner with good data back up. Her approach is also very sincere and focussed. Thanks to her.
Thank you for sharing this information. Very useful for all
They are assuming future willbe like past. With population decline and realestate excess supply and Ai .. we can live more affordably than even today due to more supplyand aging population after 2 to 3 decades..like italy snd Swisscities
my father did not had any calculation, he managed without any of these, sometimes rolling, sometimes doing some deals etc
The first sentence itself is a myth. No government servant today who joined in last 20 years has any assured pension. They will have annuity out of their own NPS savings and that too will remain fixed and will not increase each year with inflation. So if someone gets 1000 rupees/month as NPS tier 1 pension. It's value will become less than Rs 500 after 10 years and less than Rs 250 after 20 years in to retirement. Most government employees still live in this illusion of pension and some are not saving enough beyond their NPS contribution.
But NPS I guess is 25 percentage of their salary. Am I right? Which is a big percentage and nps of 25 to 30 years I guess will make a big corpus. But I agree that they need to think beyond nps and invest in other instruments as well
@@gouthamkondapavuluru1959 It is not true for first-generation NPS people like me. Due to UPA mismanagement, the contribution was only 10 % + 10 % until NDA increased it to 10 % +14 % in 2018 they realized there is not much corpus. In addition, UPA didn't invest the accumulated money until 2009. NPS is good for government employees who join in their twenties so they have some time for compounding. But for people who join in their thirties, there is a problem. The XIRR is rarely above 9 % anyways due to the large gilt proportion.
@@PankajPoddar
I have one more question. Can't the employee choose equity to be 75 percentage. Why to have high percentage of gilt
@@gouthamkondapavuluru1959 No. For government employees, it is strictly not allowed. There are four choices: 1. Default Scheme - Investments would be done in defaults schemes of LIC, UTI and SBI in a predefined proportion which is 15 (equity): 85 (debt) throughout the career.
2. Scheme G - 100% of the contribution shall be invested in Government Bonds and related instruments.
3. Scheme LC 50 - Life cycle fund where the Cap to Equity investments is 50% of the total asset. You can google the age-wise ratio. But for age 40 the equity is 40 and debt is 60 and then the equity proportion goes down.
4. Scheme LC 25 - Life cycle fund where the Cap to Equity investments is 25% of the total asset (at any age). Unfortunately, most people choose the default option out of financial ignorance (including me) until it's too late. On top of that the equity is managed very badly so the returns are not that good (worse than Nifty 50 index).
if 12% cant be achieved in equity for investments over a decade then what is the point. I will rather buy some plots and flats
Which gives you 5-6%. I will stay in a hybrid fund with 10-12% return
@@jishnu18
Who told you that plots give you 5-6%. I have 3 plots in Bengaluru and they have given me 10 to 13% return. That is over a period of 10 years.
In urban areas including tier 2 and tier 3 cities plots are giving 10% returns at least
Will you be able to sell your plot immediately when you require money that is the question. 33% equity, 33% gold and 33-% debt should do well imho.
Equity returns in last 20 years in a diversified equity fund is plus 18%
Global Withdrawal rate of 4% comes from Trinity Research. This rule states that if you withdraw 4% of your portfolio yearly, you can sustain your withdrawals for 30 years.
How do you plan for ancestors family gold
But eventually equities will bounce back as more and more investors invest in equities
Thanks
Very informative session.
Again I don't think the inflation rate will go down to 2-2.50 percent in nearby future. As a highly populated country and being large number of poor, low income group people our major gains from taxation etc is consumed in walfare schemes of poorer and also it is justified. Secondly corruption at various levels plays the major role in fixing the prices. Availability of food grains etc may lower down due to climate change, policies being not favourable to farmers etc.
I think the NPS takes care of the "double-digit" crores, if someone contributes 2L/year in a disciplined way for 30-35 years
If you assume your expenses are 50x12'per annum a corpus of 1.5 crb is sufficient at age sixty.Invest fifty lacs in nifty fifty which is going to give you returns of 9 percent over time......rest in debt which will be you around six percent post tax.( to the extent of inflation). Surplus to be reinvested invested in equity/ debt equaly)
Investment related information packed video. Almost you touched all corners of Retirees wealth management. Thanks 🎉
Nice video
I don't get this.
IF you had 6-7 crores today that got you 7% in FD, wouldn't you be able to save at least 50-60% of the return of 42-49 Lakhs even after affording a pretty decent lifestyle in most metros? This savings in turn if invested in simple index funds SIP should be a considerable corpus in 10-12 yrs even assuming a 10% CAGR!! e.g. A simple 80K SIP p.m. will be 6.12 crores at a 10% CAGR!!
She completely overlooked this part and is only talking about how inflation will make the 49 lakhs smaller with time!! Why are these *experts* making such simplistic mistakes in almost every video I wonder!!😀
You made a mistake in your understanding
@pb25193 your comment would have been useful if you had cared to explain where its wrong 😆
@@csrcaesar if ur saving 60% of 7%, your corpus will grow 4.2% which means it will lag inflation by 3-4%, which is a 60% reduction in 30 years. Note that with time your savings rate will shrink because you won't be able to save as much, so the lag rate will grow too...
Abhi bhi nahi samjha toh kal subah samjhata hu, filhaal thoda khud bhi soch lo
@pb25193 I don't think you even understood my first comment nor have a clue what you are talking.
I'm talking about the scenario where the person has 7 crores TODAY!! Even a risk free return should fetch them 42 lakhs p.a.!! More than enough to have a comfortable life in any metro and save 50% for continued investment. Which will clock another 6-7 crores in the next decade!
She completely ignores this and is scare mongering clueless investors.
@@csrcaesar this is exactly why I didn't bother explaining
People are already confused. You are enhanching problems by uploading this kind of video.
how this female has done calculation of 8 cr in FD. If a person just lives on interest amount & also save in that it can definitely do wonders.That at fd interest at 7.2% is 4 lakh 80 thousand per month. I think she is incorrect
This lady doesn't know anything about financial advise 🤦🏼♂️