Summary of this article
Retirement planning compared to cricket innings.
Start early to maximise compounding power.
Corpus must match future lifestyle costs.
At the IDFC First Bank presents Outlook Money 40After40 Retirement Expo, Nikhil Varma, Head Bancassurance, Wealth Management, IDFC FIRST Bank, delivered a powerful and relatable session on retirement planning. His segment was framed as one to explain one of the most financially significant journeys of one's life. Data shared by IDFC First Bank shares financial planning for people in a very relatable format.
The 20s of one’s life are simply called the “Powerplay Overs”, with strategic moves such as rigorous saving, converting spending into disciplined savings, and setting up goals before lifestyle expenses escalate. With this, the emphasis was laid on building strong financial habits, rather than adapting to expensive lifestyle habits. This is supported by numbers that suggest if one starts saving Rs 5,000 per month at the age of 20 at nearly 8 to 12 per cent, one can exceed 3.16 crores by the time one reaches the age of 60.
Despite a rising participation in mutual funds, it is seen that the lifestyle expenses are outpacing the savings. Housing, dining, entertainment, and shopping have a command over the share of income in this age group. While the Consumer Price Index (CPI) inflation averages around 5 to 6 per cent, real lifestyle inflation in the 30s can rise to 12 to 14 per cent, which is contributed to by education, housing, and medical costs.
The 30s to 40s age group is defined as the years when consolidation becomes critical. Home EMIs take up 30 to 40 per cent of one's income in these years, in addition to the costs of supporting children’s education. Here, people have a good chance to cultivate their retirement corpus, as their salaries increase, but this can only happen with insightful and adaptive budgeting.
The 40s and 50s are the years which are almost impossible to ignore. Retirement may be 10 or 20 years away, but the peak earning years coincide with peak expenses, children’s education, weddings, medical costs, home loans, etc.
For those who are aged 50 and above, prudence enters. Income streams are now limited, all the while expenses are constantly on the rise. Post-retirement annuity income typically delivers around 5.50 per cent to 7.50 per cent. This underscores how the need for a retirement corpus is nearly 30 to 35 times the annual expenses, while keeping a safety net ahead of emergencies.
It was highlighted how a Rs 1 crore corpus has two different meanings at the age of 30 versus at the age of 60. The key is not just the size of savings but if financial goals and ability align with the future lifestyle goals.
