Yes Subra, I agree with you I need X amount for retirement, after all you may end up spending a fortune on medical expenses during retirement

——-Most people tell me this.

Wrong. You may or may not spend much on medical expenses (hey I am not saying you do not need medical insurance). I am just saying that medical expenses may or may not happen, may happen once in 4-5 years. The biggest expenditure in retirement is still likely to be INCOME TAX.

Many people plan their accumulation phase well – and they do accumulate decently. However on retirement they find that rent, pension annuities, interest from banks, etc all add up to a decent number, and they continue to pay tax at 30% . THUS the single biggest expenditure on retirement continues to be personal income tax.

Myth 2: Medical Insurance will cover everything!

I have no love for the people who do not have medical insurance, however I cannot look at you in the eye and say that all your expenses will SURELY be covered by the claim. The industry is notorious for delaying and denying claims. So be prepared to pay for illnesses which ONLY the insurance company ‘knows’ is pre-existing. In the medical insurance business we are in the 1950s. Competition is only in MARKETING, not in service. Sad but true.

Myth 3: You will downsize your standard of living: This was true for people who retired in the 1980s. However, now it is not true at all. Most people who are retiring now, continue to draw from the corpus as though nothing has happened. The car is still a SUV, the holidays are luxurious, and generally nobody gets a feeling that they are looking at a retiree. So come to grips with the fact that you will not or cannot downsize, so do not expect any reduction in the day to day living expenses.

Myth 4: You must have life insurance if you have a loan

For many people the brilliant myth of the life insurance industry stays stuck. If you have 3 houses – out of which one is on an EMI, there is no need to have life insurance. Nor do you have to repay the home loan just because you have retired. If your home loan is at 7.5% p.a. you are better off funding your PPF and wife’s PPF accounts – afte all 8.5% is better than repaying the cheap loan. So all loans should be repaid on retirement, and you need life insurance if you have a loan are mythical.

Myth 5: Rs. ONE CRORE is sufficient for retirement:

Not true at all today. Will sound like a cruel joke 5 years from now. You need at least 1 Million US $  to retire – assuming that the primary residence and such basic needs are already taken care of.

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  1. The mention of the retirement amount in USD is very interesting and thought-provoking. Exquisite. Thanks.

  2. USD 1 Million is also a moving target. If I had retired in 2010 with 3.9 crores then I would have been happy that I retired with USD1 Million. Now the same thing is not even 700K USD. If you wait for a couple of years when USD-INR will be in the range 59-60 then it seems to be eternal moving target. I think resident Indians have to think in INR based corpus for retirement

  3. Do we really need to retire?

    Getting into the board of a private company is like a retirement free “job” , though has its own risk!

  4. Subra sir,
    Just, an alternate hindsight. Many write about investing in various avenues for retirement. But why no one is suggesting about farming?
    I am working in IT and my father is a farmer(Aged 58 ) and has about 15 acres of land, With that he is able to live a decent life on his own (Me or my brother don’t support him monetarily). He could even take care of occasional medical bills (Including my mother which is quite hefty).
    I am not talking about farming is easy / difficult / couldn’t be done by everyone / could be done by every one. My question why no one ever thinks/ suggests this as an option?

  5. Hi Subra,
    I did not even imagined that I have to pay income tax after I retire. So what options do we have to avoid income tax after my paycheck stops?

    I know it is a moving target, but as of now, long-term capital gain is tax-free and rent is tax-free if there is no paper-work involved!! But god only knows what would be the tax rules at my time of retirement. So only thing it can help is knowledge about those things, I guess…

  6. Sreedhar

    Farming during retirement? it is the toughest job on the planet. A city bred guy standing in the fields for a full day with the sun blazing down? Not even worth thinking of except for a farmer or a farmer’s son. If you spend 25 years in a desk job chances are you will sell off the land and sit at home. THE super hardwork most of us city dwellers will not even be able to think of.

  7. Sreedhar,

    Returns from farming are not commensurate to the capital deployed (land cost / prices) and also the efforts put in for large part of India and majority of crops.

    Only those people have been continuing farming who have inherited land. Have you seen anyone buying land and doing farming? It is very rare because it is a losing prooposition in vast majority of cases (You may hear odd cases of folks buying land and getting into grapes/etc.)

    This is the primary reason, generations after generations move to cities by leaving farming.

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