Two Incomes, One Blind Spot: Why Dual-Income Couples May Be Overconfident About Retirement

By Ashok Manwani, Vice President, Products, Go Digit Life Insurance

A couple getting two salaries, having a manageable home loan, sending their children to good schools, and making some SIP investments is considered financially secure by many modern Indian couples. But having two earning members is not enough to have long-term financial security.

In fact, dual-income families often neglect the need for planning for retirement because of the easy lifestyle which is supported by having two paychecks. Increasing expenses, inflation of lifestyle, and a belief that both partners will continue to earn money often mislead them regarding their financial situation.

Income is not the same as wealth

Moreover, it is important to note that income is not the same thing as wealth. With the increase of earnings, their expenses grow proportionally as well. Expenses on big houses, buying cars, and using expensive lifestyle options will determine the amount of money saved for retirement.

For example, a couple who earns 3 lakh and saves 30,000 has a lower savings rate than a household who earns 1.2 lakh and saves the same 30,000. Even if the amount earned in one case is higher, it doesn’t mean that their lifestyle will require lesser commitments after retirement.

The concept of “we’ll catch up later”

Normally, people seem to get excited about their retirement savings as soon as they start earning their highest salaries in their late 40s and early 50s. However, it is precisely during this time that other obligations emerge, such as paying for kids’ education, taking care of elderly parents, and fulfilling financial obligations.

Additionally, in case one of the partners in a family loses a job due to a layoff, health problems, or caring for others, the situation becomes even more complex, and a two-salary budget becomes unfeasible. This is the reason early retirement planning is critical.

Possessing many assets but not having enough cash

Although real estate, land, pension funds, and gold are important wealth-enlarging instruments, just counting one’s net worth is still not enough to ensure financial independence.

Retirement requires having a monthly flow of money to cover living and medical bills. In the case that retirement requires a real estate sale in order to provide for the costs, this may simply not be possible, as it’s much easier to sell everything else, except for the family home.

What can couples do differently?

Couples with dual income can improve their retirement readiness by making some wise choices.

● Account for inflation: Make future expense estimates and prepare cash for a longer retirement duration.

● Make savings a priority: Treat contributions to retirement funds as a must-do and increase them with increasing family income.

● Take account of post-retirement income: Think about how the current savings will produce income after people stop working.

● Prepare for loss of income: Check if the family can afford necessary expenses in case of unexpected unemployment of any of the partners.

● Monitor finances together: Make sure to assess cash assets, liabilities, insurance, and estimated retirement income.

The concept of inflation and longevity is often insufficiently appreciated

Many households prepare for retirement by calculating their expenses while disregarding inflation. Assuming an annual inflation rate of 6 per cent, the current expenditure of about Rs 1 lakh may rise to approximately Rs 4.3 lakh over 25 years in order to keep the same standard of living. Retiring couples at the age of 60 may need to plan for over 30 years. Rising medical expenses coupled with increased life expectancy would put more strain on savings.

Assumptions regarding investments should also be carefully considered. Depending only on stable high returns from equities may put retirement planning at risk due to market fluctuations. Thus, building a corpus is only half of the process of retirement planning, which consists of two parts: accumulating wealth in the working years and managing it during retirement.

A successful portfolio will take into account liquidity, growth, capital preservation, and stability while investing people’s savings and generating money from them in order to prevent retirees from being overly dependent on market performance.