The Golden years - Financing a longer retirement period

April 10, 2025

·       Professionals in various fields like Emergency services, Health sector, Legal, Investment Banking, Customer facing industries are prone to ‘burn-out’. Further, the advent of AI brings with it the inherent risk of various IT/software jobs becoming redundant. This is already a looming threat for the large Indian Service Industry and reflecting in the muted performance and outlook of IT stocks. With growing automation, requirement and cost of Human Capital is bound to drop. Wave of protectionism around the world is an additional threat. 

·       Due to the above alongside an increased life expectancy, professionals need to plan in advance for a shorter work term and a much longer low/zero income period. Further there is always ‘lifestyle creep’ in living expenses with additional time at hand viz more travel, more time spent on hobbies.

·       Most people are unable to fathom the Retirement corpus requirement since the gut feeling is the money accumulated from savings seem to be quite a big number compared to what is spent annually.  Further, human mind is fixated to past and hence already accumulated funds may seem very high compared to what one had gauged they would achieve at start of the career. The conditioning is not broken given Insurance Companies are still advertising a Rs 1 cr insurance policy, implying it to be a sufficient cover for an average middle class person and his dependants.

·       Reality is far from truth. Impact of Inflation is brutal over such long periods of retirement and accordingly the corpus you need to accumulate and the amount which you can annually withdraw  (‘Safe withdrawal rate’) need careful mathematical scrutiny basis variables like:

o   Time to retirement & Time in Retirement

o   Expected Inflation including differential Medical, Travel and Education inflation

o   Comfortable Asset mix and Expected Return on Corpus

o   Expected lifestyle expenses

o   Number of dependants and Medical contingencies

·       As a thumb rule, a safe withdrawal rate of 3% can be considered as sustainable i.e. you can withdraw 3% of your accumulated wealth as expense each year on a sustainable basis. Another way to look at it is 33x expenses in Invested corpus before you can think of kicking the boot. However it is ideal to approach a Registered Investment Advisor who can help you with evaluating the above in detail since you cant rely in ballparks when a peaceful retirement is at stake.