Ravi Kumar, a surgeon, has a challenge on his hands. His parents did not save anywhere near enough for them to retire comfortably. They’re just about able to meet their current everyday needs, but were not prepared for the increased medical expenses that old age brought. But they live in India while he, a surgeon, lives in the UK. His parents need 24-hour live-in care because of their limited mobility. Their monthly income is ₹40,000 while their expenses, thanks to increased healthcare costs, are almost ₹75,000 a month.
This monthly shortfall of ₹35,000, or a little over ₹4 lakh per annum, has to be borne by Ravi. Ravi is part of a generation, perhaps the last of its kind that grew up knowing that they have to do their bit to take care of their parents financially.
I’m not sure that’s the case with people (like myself) who have young children today. If we fall short of our expense needs, we’re likely to have a much tougher time than Ravi’s parents will.
With longevity increasing in India, and people living long post-retired lives, the need to make adequate retirement savings has been discussed
To get a sense of the numbers involved, we looked at about 16,000 users on the Bigdecisions’ retirement planning tool. We first categorised investors by the number of years left for them to retire. Then we mapped their current living expenses and the monthly savings required to maintain the same lifestyle post-retirement.
What the data showed was this. One, the youngest people in the group face the lowest gap in their retirement savings. They need to save only as much as they spend for a comfortable retirement. Thus, the earlier you start, the lesser you need to save every month.
If you do not start early enough, the required savings go up exponentially, as seen in the case of people who have less than 21-30 years to retire and are therefore likely to be in the 30-40 age group.
They need to save more than they spend. Those in the 40-50 year age group have a Herculean task ahead and need to put away almost twice as much as their current expenses.
Key takeawaysBy the time people get to the ‘at retirement’ stage, the required savings may be hard to come by.
For investors, the key takeaways from this study are:
For the longest time, Indians have looked upon retirement planning as something to work on after more ‘immediate priorities’, like buying your own home and providing for children’s education, are taken care of.
As we see in this study, not starting early makes it very difficult to build enough of a corpus for your retirement.
People are not averse to stretching themselves to buy an expensive home where the EMI takes up a big share of income and are very open to providing their children the very best in education in India or overseas, but do not show the same urgency with respect to planning for their own retirement.
For those who do not start planning early, the savings needs are so high it’s almost impossible to build the required corpus. This necessitates dependence, most likely on children.
The author is MD & CEO, BigDecisions.com