The retirement bomb is ticking!

The bomb is literally ticking for millions of Indians in the corporate sector who will not get any pension/medical cover post retirement. And, the bomb can blast irrespective of how much you earn today.

It is real for someone earning Rs.10 lakhs per annum as well as for one earning Rs. 60 lakhs per annum.


When will you retire?


In the private sector, you may be fired irrespective of age. And, if you are not able to find a new job either due to lack of demand of your skill set or due to recession, or you choose not to take a job paying half of your original salary, you may be forced to retire. The risk is lower when you are in 20s/30s as you have a lower salary, can expand your skills, and are willing to travel.


The risk of forced retirement increases substantially after crossing 50 years of age. In your corporate office, how many percentage of people are older than 50?


How many years will you live after retirement?


With advances in medical technology, the average age expectancy is increasing every year in India, and so are the medical expenses. One can easily expect average age expectancy to cross 90 in two decades in metros. So, as a conservative estimate you can expect to live till 95!


Medical expenses post your retirement?


Most people talk about reducing their expenses after retirement. However, you should be ready for the opposite. The medical expenses go up exponentially after retirement
Assuming 2 cataract surgeries, 1 hernia surgery, 1 prostate/gynae surgery, 40 years of routine medicine, tests and check-ups, 5 hospital admissions for infections, and one organ transplant/cancer/major illness in a corporate hospital, the total cost in today’s money would be roughly Rs. 1-2 crores.


If you are going to retire in 10-15 years of time, with no medical cover, and assuming an inflation of 6% in medical expenses for next 40 years, the total amount would be somewhere around Rs. 10-20 crores for one person. You can add Rs. 5-10 crore for your spouse.


Some of you may argue that not everyone would need an organ transplant. However, medical technology will advance a lot in next 25 years, leading to many newer and expensive treatments, which would improve your longevity, but at a high price.


There were almost nil liver transplants 20 years ago in India, while hundreds are performed every year today. An artificial heart transplant today costs more than a crore, while liver transplant costs 20-30 lakhs, not including the cost of medicines for the rest of life. Who knows in 20-30 years’ time, you may get any organ produced artificially in 50 lakhs to 2 crores!


These may seem mind boggling numbers to some of you. However, they are not! Rs. 1 crore would be a relatively small amount 30 years from now. What was the value of Rs. 1 lakh in 1980, and what is the value today?


How much money do you need after retirement?


Assuming you retire at 55 years of age, and live till 95, you will have to survive 40 years without any monthly pay cheque and lot of medical expenses.


Do you have any idea how much money you will need to retire?


If you retire today, you need 50 times your annual expenses as retirement corpus in liquid assets (bond, stocks, fixed deposits). If your annual expense is INR 5 lakh per annum, you need Rs. 2.5 crores. If your annual expense is INR 20 lakh per annum, you need Rs. 10 crores to retire today.


30-50 times annual expense is the broad range required at retirement. 30 times is more aggressive, and has less safety in case something adverse happens, while 50 times annual expense is a more conservative estimate.


If your annual expense is 10 lakh per annum (most middle class families), you must be thinking about accumulating Rs. 5 crores by retirement. However, in the formula of 50 times annual expense, annual expense is of the year when you retire.


So, if you retire 15 years from now, your expenses may have gone up 4 times by then (@9.5% inflation), and so would the size of your retirement corpus. It means, your expenses would have quadrupled to INR 40 lakhs in 15 years time, and you  require Rs. 20 crores for a safe retirement, unless you are ready to beg in old age.




Happy Investing
Source:Equitymaster.com