New Delhi, Dhirendra Kumar. Saving is not a big deal. But managing savings is a big deal. The main reason for this is that whatever little or little is done in the management of savings in earning days, its direct effect is seen on the life after retirement. But even the most savvy investors often assume that if the entire savings are put in a safe asset class, then the life after retirement will be cut off. But this is not possible, because your currency, the rising and falling price of the rupee, also keeps chipping your hard earned money. In such a situation, you have only one option left, that the investment amount should be at least so that the earnings earned from it are able to meet the future needs, beating the inflation rate. How could this happen?
I usually answer many questions on topics related to savings and investment. But the questions asked on retirement planning worry me the most. Mainly the questions that are related to managing investment and earning income after retirement. In fact, when old people ask questions on income after retirement, I feel a kind of fear. This is because when you are young and earning, you can handle savings related mistakes with a little patience. You may face some inconvenience when this happens.
It is sometimes difficult for seniors to avoid bad situations. One important reason for these problems is trust. The belief is that the most important thing in retirement saving is that the entire amount should be invested in a safe asset class. And this secured asset class must necessarily be one or the other type of fixed income deposit. But this is not true. Even for those who have large amount as savings, the major problem of retirement planning in India is to compensate for inflation. If inflation was two or three percent in India, then the problem would not have come. But the reality is that the decreasing purchasing power of the rupee is eating up our savings rapidly.
After retirement, people often need income for an average of 25 years. And in this period you can expect prices to increase by almost five times. If you need Rs 50,000 for monthly expenses today, then after 10 years one lakh rupees will be needed. After 15 years, Rs 1.3 lakh and after 20 years Rs 1.8 lakh will be required. You will not only need to withdraw more money from the retirement corpus over time but also increase capital over time which can support more withdrawal over time.
The solution to this problem is not easy. In Value Research, we have an easy way to estimate how much you can withdraw. This method is easily understood. To support the Inflation Adjusted withdrawal rate, it is necessary that you withdraw the same amount as your savings earned except the inflation rate. Consider this carefully. If your savings are earning at the rate of eight per cent, then you should withdraw only two per cent. This will keep your savings at least equal to the inflation rate and ensure that you will not become poorer over time after retirement. One percent means that 50, To support the current purchasing power of Rs. 000, you will need Rs. 3 crore. This is a huge amount. If you follow this method and think how much return you can get from safe investment options, then you will understand what the problem is.
Look at the inflation rate. Consider not just the consumer price index, but the real inflation in your life. After this, compare it with the current FD and other rates. The difference that will come is very bad. In fact, it is more than bad. Often this difference comes in the negative. Generally, investment options are rarely able to give consumers above inflation. You cannot withdraw anything from a bank deposit. If we talk about the actual value of the money then it does not increase anything. For this reason, I always say that some amount of equity should be included in the income after retirement. This may not be complete equity because equity has high volatility in the short term. That is why a hybrid fund, also called a balanced fund, can help you.
Hybrid funds have supported a four-year annual withdrawal rate during the last two decades. However, it does not guarantee the future as no investment is guaranteed. With this you can ensure that you can get a better chance of beating inflation. You have to remember that the withdrawal rate is not a fixed return, nor does the savior automatically qualify for it. In the initial years, it is better that you withdraw at least the amount, so that the capital has a chance to grow and compound for the future. Sometimes the savers ask me if I can withdraw a little more than your refunded amount. My answer is always that you cannot negotiate with the future. It is better that you keep some amount in your hand. This is the biggest principle in savings decisions but it is very important after retirement.
