At the Outlook Money 40After40 Retirement Expo, Nikhil Varma, head-bancassurance, wealth management, IDFC FIRST Bank said that Indians often confuse saving with retirement planning, and dip into their savings corpus for their retirement needs.
The hard truth that a majority of Indians typically don’t plan for their retirement is a fairly well-known fact. One of the reasons is the cultural aspect of a joint family system, which is, however, slowly disintegrating to a nuclear family system, and a traditional belief that children would take care of their parents in old age.
However, changes in family structures due to children moving out and even settling abroad is slowly changing that set-up, and the lack of planning previously is now haunting a lot of those in their old years, who possibly never expected of such a changed set-up or scenario in their retirement years.
Nikhil Varma, head-bancassurance, wealth management, IDFC FIRST Bank, while presenting a talk on the ‘life expectancy vs preparedness to sustained lifestyle and exigencies’ at the At the Outlook Money 40After40 Retirement Expo, said that Indians are confused about savings.
“India is confused about savings… completely confused about savings, whether it is the elderly, the middle age group or the youngsters. Let’s say if your monthly expenses is Rs 50,000 today, what is it likely going to be over the next 25 years? A lot many of us are confused about this. The next question is how to ensure that you have that kind of cashflow 25 years later,” he said.
He added: “Just look at the days when we were students, in school or college, I don’t recall anybody talking about retirement or the need to save enough for retirement. Yes, there might have been a one-odd discussion or two, but I don’t think somebody taught us about this concept in our academics, that you will live more, work less, and you need to prepare for your cashflows, and more so in a declining interest rate scenario. Also, 53 per cent of Indians save for short-term goals, and retirement is a long-term concept. The elderly, who retired early were living in a golden era, where they were able to probably invest in products when interest rates were in their favour and could built significant wealth for their future, but that won’t be a reality in a declining interest rate scenario.”
He further said that “about 57 per cent of Indians still expect their children to take care of themselves”.
He added that the aspirational goals of Indians have also changed drastically over the years.
“From aspirational goals, we have moved to super aspirational goals. For instance, weddings have moved on from the terrace and gardens (of your house) to fancy venues, in say, Goa or Jaipur to even international destinations. Even our lifestyle needs have changed. Today we don't mind spending Rs 1 lakh, Rs 50,000 or Rs 70,000 on our phones. In a family of four, everybody has a fancy phone. This indicates that the type of our expenses have changed,” he added.
He said prioritising retirement is as important and critical as prioritising health, which, unfortunately, we don’t do.
“If your expenses are Rs 50,000, it could be up or down, but if you need Rs 2 lakh per month after 25 years, then you have to ensure that you have that kind of cashflow then. You need to set aside at least 20 per cent of your annual income towards retirement,” he said.
He, however cautioned that one shouldn’t confuse retirement planning with saving.
“Don’t confused that you are saving enough. That’s not the way to look at it. For instance, if you have two children – child 1 and child 2, then you should plan for them individually; this much for child 1 and this much for child 2. You obviously know their strengths and weaknesses and their taste and preferences. So, clearly identify their goals – what you want to do for child 1 and child 2, and plan for that accordingly. But your retirement is different. You cannot dip into your savings for your retirement. If you want a certain sum of money as cashflow after so many years in your retirement, then set aside that money and think for your future. That is the essence of retirement planning.”
“So, for the Gen Z or those in their 30s or 40s. If you save 20 per cent of your money, then you can get to that sum of Rs 2 lakh per month with just the minimum assumption of 10 per cent, even after factoring in inflation… forget 12 per cent or 14 per cent. If you can save just 20 per cent, you can manage and sustain your lifestyle. But of course, you will still need to have a health cover.
He also highlighted the rising cost of medical expenses.
For instance, a bypass surgery that might cost approximately Rs 5 lakh now, is likely to cost Rs 7 lakh in 2030, Rs 13 lakh in 2040 and Rs 23 lakh in 2050. Likewise, a lung transplant or a kidney replacement, which would cost Rs 16 lakh in 2024, would cost about Rs 79 lakh in 2050, he added.