With no state-sponsored social security system in India, planning for a secure and comfortable retirement becomes a primary focus in most individuals’ investment journeys. In an interview with CNBC-TV18, Rajat Chattopadhyay, EVP & Zonal Head-West at SBI Mutual Fund, and Vishal Dhawan, Founder & CEO of Plan Ahead Wealth Advisors, shared insights into the nuances of retirement planning and the various options available to help build a substantial retirement corpus.
Below are the excerpts of the discussion.
Q: What is this whole concept of retirement planning?
Chattopadhyay: Retirement planning is not about only managing money; it is about pursuing your dreams and aspirations. While we are working, we are all bogged down by the routine work. We have a lot of to-do lists, but finally, that gets postponed. So it’s only after retirement, or probably nearing retirement, that we think about getting into the various aspirations or dreams that we have. Retirement planning is so important, but we fail to understand the need for retirement planning.
Q: For most of our working lives, we focus primarily on earning, and at best, we have scattered investments—a bit here and there. We might hold a variety of mutual funds, and perhaps we know that our total portfolio is around ₹50-60 lakhs. However, we may not clearly analyse or strategically build a dedicated retirement corpus within that overall investment. How do you blend in retirement planning with your overall investments?
Dhawan: The way our brain sort of treats our multiple financial goals very often is that it uses the same set of monies for all of these goals. Whether I want to support an education for a child, or whether I want to travel on an overseas vacation, or I want to buy a car, or I want to buy a house, all of this sort of gets meshed up. And I think one of the most important things, therefore, is to be able to do some sort of labeling with specific numbers saying that these are what I require for retirement. There is also the inflation devil that we all have to deal with to be able to sort of meet our requirements, and we need to be able to somewhere also figure out that our expenses are not going to drop as much post-retirement as a lot of us imagine because what we will all end up having more of when we retire is time, and very often when we have time we end up spending more money.
All these things are to be looked at together when you want to put together your retirement wheel within the overall life picture that you want to create for yourself.
Q: How do you decide what that retirement corpus is that I must have by the time I turn 60?
Dhawan: The starting point needs to be to look at your expenses and go line by line. You need to go through your bank statements; you need to look at your credit card statements, but you need to do that hard work because you need to go through that and look at which of these items at today’s cost are going to be at the same level. Let’s say, for example, that your groceries may not change dramatically when you retire, but there could be other things, like, say, medical provisions that could end up going up as you get older. And maybe there is some expense around dependents, let’s say children, which will go down when you retire.
You try to create these buckets and say, let’s project this forward, let’s apply inflation, and let’s not forget lifestyle inflation. You don’t want to buy an Android phone anymore, but you aspire to buy an iPhone, for example. So you want to build in the lifestyle inflation element in it as well. And then come to what is that corpus that you will require, which will again support inflation-adjusted costs when you end up retiring. So I think that’s the big, big thing that you need to do.
One of the things that you do want to keep in mind is, that while you’re making this transition, you will want to shift from higher growth and more aggressive assets to more defensive assets. I wouldn’t say everything needs to be defensive, because then you can’t beat inflation, but you need to do some sort of a tapering or a step down approach to how much risk you want to take as you get into your retirement years.
Q: Do you broadly agree, or is there some shortcut formula? Because, what Vishal is saying is laborious, and you really need to apply yourself and think line by line, how much if I were 60 today, what would my expenses be? And then add inflation to it. Any other formula or rule that you follow?
Chattopadhyay: As far as formulas are concerned, there are multiple formulas. The simplest is that, today, if somebody is at the age of, say 20, so normally we say let him at least do 20% savings of his income. Similarly, if he is 30, he can go up to 30% and so on. But overall, I think if you look at building a corpus of say ₹1 crore, and somebody is at 35 and if he wants to build a real good corpus for his retirement, even if he does close to ₹5,500 per month, after 25 years, he’ll make a ₹1 crore. But the wonderful thing is that if he starts at, say, age 25 and for him to reach 60, he has 35 years. So for him, he will not be required to invest close to ₹5,500 a month. But he’ll be required to invest only ₹1,500 a month. So the earlier you start, the better.
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