How much will you spend in Retirement?
Sadly Indian research on people’s spending habits is not available. The Americans have some numbers which are completely useless for us. For example you will find a number of 70% – in retirement you will spend 70% of what you spent in the last year that you were working. IN American language it means the amount of money you will spend in retirement is 70% of the expense at your age of 65.
Completely disagree with this. Even for a minute conceding that you spend 70% of the last year’s expenses, in Indian circumstances you will soon reach 140% – in about 8 years time. Assuming that you live till age 100, you would have gone to 140, 210, and 280% of your last years expenses – AT LEAST.
There is another ratio – you can withdraw 4% of the corpus every year for the rest of your life without eating the capital. A few people feel that for Indian conditions it could be 7%. I am not sure about this 7% on a permanent basis. I think it should work, but just that I am not sure about it.
I have seen two things happen. People are conservative in the beginning of their retired life. They are worried that their money may not last, so they spend less. Later on they spend more! Another case is that of a rich man with many children. He would just not spend his money. His sons/daughters would have to say “we will pay” only then would he even spend on medicine for himself or his wife. His son pushed him into buying a medical equipment for his wife – it cost Rs 90,000. However when he died he left each of children about Rs. 1 crore – as a part of his portfolio. No clue why people cling on to their wealth. Is it some kind of a denial about their mortality?
When people are asked they actually do not know how they will spend in retirement. Will they eat out regularly in fancy restaurants, drive fancy cars, take expensive vacations with other non earning members, etc. it can cost a lot more than sitting at home and watching TV. I don’t think any financial planner or advisor can calculate expenses beyond 4 years…..after that it is a guess. A rough estimate at best.
Assuming a 5-9% inflation post retirement for your expenses makes sense.. don’t ASSUME anything, and remember that you know you are guessing!!
naduvathery
I have somewhat different view on this. Yes it’s all about attitude, philosophy, and the outlook about life. The world sustains by itself with the contribution of two kinds of people, the savers and the spenders – the consumers – both are inseparable segments of the society. Savers create the factors of production like the markets, malls, and other economic institutions, the spenders enjoy them. The spenders are the oxygen of the society. Savers are the vitamin pills. What is important is the overall philosophy of life. There are so many people, things, and living beings teaching you this philosophy. And they can be considered your guru. Starting with your mother the number is countless. You learn from them various focus points of life like saving, career, job, investments and so on. These focuses lead to a successful life. One guru I have found offering overall philosophy of life is the Cat. Have you observed the cat? You toss it in the air, it will fall on its four legs. Nature has made its legs so flexible that it comfortably lands on its legs. What we should learn is that human beings also should develop four legs so that you can protect yourself if life tosses you in the air. The legs humans must develop is 1. GOOD HEALTH…you can draw a picture only if there is a wall. Health is the wall, 2. GOOD EDUCATION: It makes you capable of doing something when you face a wall, 3. CAREER AND REGULAR INVOME: Regular invome throigh a job or vareer is the third leg, 4. ASSET CREATION: Assets are those which multiplies your capital. Those assets are your fourth leg. This gives you financial security. Today work life is shorter. Like olden times you can’t work for 40-50 years. You need to be financially indecent by 35, only assets can take you there. Financial independence comes when you have sufficient investments to give you interest income, and properties that can give you rent income. When you grow old you can sustain only by these two incomes, the other is to live on the mercy of others close to you. So develop these four legs for a successful life. If yoh have integrity along with your lega mentioned above, there will be people around to love you too. Good Luck.
Anil
Fully agree with a lot of this. Us Indians haven’t really grasped the concept of planned spending in retirement.
I’ll give the example of my inlaws. Both of them retired from government jobs with indexed pensions (60% of last drawn salaries) for life. However just after retirement, they had no cash since a bunch of expenses came together – daughter’s marriage, buying a house they would want to live in etc. That made them extremely cautious. Now 10-12 years after retirement, they are spending barely half of their income, have large savings sitting in FDs (1 Cr +) and own 2 houses. They’ve suddenly woken up to the fact that they can spend and my mother-in-law is buying jewellery like crazy, bought a large car (with nowhere to go) etc. They could’ve had a much better lifestyle these years when they were a little more active if they’d only planned things a little bit and maybe hired an adviser