Conceive a baby for retirement!

Source: The Hitavada      Date: 09 Nov 2018 09:30:33


By Snehdeep Fulzele,

Sons and daughters are the Apple and Samsung in the eyes of parents. Two brands that have created frenzy over the world are everything that parents want their children to be – unique, famous and most sought after. Indian parents will do everything possible to create a better life for their next generation with only one expectation that they should study well. Parents don't mind the hard toil to provide quality education.

They would even stretch beyond their means to fulfill lifestyle wishes of their children. In the process, parents struggle through earning years of their life and unwillingly become dependents on children post-retirement. Where else can they go without money?
Sadly, these sons and daughters are different. They have got the wings and globe is their sky. Opportunities coming their way are different, skill sets have changed and as a result, their aspirations are unlikely to match our expectations. As a parent, you would not like to tie-down your kids to your city. At the same time, you cannot always fly with them.

Having lived your life with dignity, plan immediately so that your independence is not challenged when the Sun sets on your active earnings. First step of the plan is to set your priorities right. Your retirement ranks higher than education of your children. It is immaterial that you may not retire before your children graduate. An ambitious child can plan his studies on student loans. Terms of such a loan are quite customer friendly and the payback does not start until course completion. Check the details with your bank or visit You will do well to bear in mind that a grown up child can manage his life and at the same time he carries no obligation to take care of you.

Rome was not built in a day. Likewise, ideally, your retirement planning should have started from the first salary of your first job. Irrespective of where you stand today, start preparing for your retirement from your next pay cheque.

Time is your biggest enemy. Why? Because Rs 100 today are less than Rs 100 tomorrow. You would have experienced that expenses grew in line with your income but you will experience that they will not drop in line with declining income or no pension in your golden years. Irrespective of whether you earn or not, you will need certain basic expenses to inhale oxygen and they grow with time.

Simply speaking, if you can buy a kg of rice today for Rs 100 then tomorrow the same quantity of rice is going to cost you more. Difference between tomorrow’s inflated price and today's price is called – inflation. Let us assume that your current monthly expenses will grow at 5% inflation until you retire in 10 years. If your current expenses are Rs 10,000 then in 10 years, your monthly expenses would be around Rs 16,000.

‘This is atrocious’, you may cry staring at the bills in hand. You may agonise over EMIs that are waiting in the wings or groceries that turn up at regular intervals no matter how often you fill the jars. But that will not sort outyour problems.

Stay with the basics at all times whether you have the money or you don’t. Never buy luxuries on loan or exceed expenses beyond income. Buying goods on credit card is a financial suicide just like habit of instant gratification is slow-poisoning. They are sure shot ways to go down-hill.
How you wish that you had an extra-earning member in the family just to take care of the ballooning expenses so that you can breathe a little easy?

In my book, ‘Die Poor Or Live Rich’, I have explained that - ‘Wealth Creation is a function of three factors – investment amount, returns and period of investment’.
Obviously, you need either more time or higher returns to create an extra-earning hand. This is nothing less than conceiving a baby and helping her grow. Only a strong and healthy child will help you through your retirement. Recall how you nursed a small baby. When baby fell sick - you went to a doctor, gave her extra attention, better nutrition and required dose of medicine. You waited on her to regain strength. You did not scold her or abandon her. Baby did not recover instantly.

She took time to get off the bed, on her feet and soon, before you realised, she was running. She acquired knowledge and became wise.
Similarly, a financial baby may start small (a little investment to start with) but give her time, nurse her through her sickness (when market is down) and she too will grow to hold your hand in retirement.

Remember this formula: 15:15:15, a monthly SIP (Systematic Investment Plan) of Rs 15,000 with 15% returns will take you close to Rs one crore in 15 years. It does not mean that after eight years, you will have more than Rs 50 lakh.

You will have less than Rs 27 lakh. That is how compounding works. In five years, you would have close to Rs 13 lakh while in 10 years, your investment will be in the vicinity of Rs 40 lakh.

Let us return to our example of Rs 10,000 monthly expenses that would become Rs 18,000 on your retirement. If inflation remains at 5% for the rest of your life but returns decline to 8% post-retirement as you move your funds into safer assets then you would be all right till the age of 85 as fund requirement caps around Rs 35 lakh.
That is a very thin margin to manage 25 years of retirement. With so many variables – inflation, life expectancy, return on investment etc., it is better to plan with higher margin of safety. If we just raise our expectation of inflation by 100 basis points then with 6% inflation, you will need Rs 43 lakh to manage your years of retirement.

Clearly, you will struggle with a shortfall of Rs 3 lakh. That time, there will be no turning back the wheels of time. It is better to look ahead with optimism than look back with regret. Be wise! Plan your retirement today! Conceive a baby to take care of you in your golden years. Does that mean you need more babies to take care of other financial goals? That is not such a bad idea.

(The author is independent financial advisor and author of the book Die Poor Or Live Rich)