Plan for a 100-year life

Earl Nightingale, an American author and broadcaster, once said, “The foundation of a good retirement is planning”. Earl was right. Say you have been a diligent investor who started retirement savings at 35 years. When you retire at 60, you have adequate funds for the next 25 years. But what happens after that? That could be the real worry.

For years, Rs 1 crore was estimated to be the minimum amount required to retire comfortably in India. As inflation increased, this estimate went up to Rs 5 crore. But typically, these estimates would consider a period of 20-25 years of life after retirement. However, life expectancy may vary. If funds are depleted by the age of 80 years, you might have to depend on friends and relatives for getting through the rest of your life.

India’s life expectancy stood at 64 years in 2003 and is expected to rise to 72 years in 2024. This is just the average estimate by the United Nations, which means the number could vary based on each individual’s medical history and ability to afford quality healthcare. So, it could be beneficial to save a bigger amount to last up to 100.

Insurance companies have already made the move and offer term plans that last until 100 years of age. That might become the new investment benchmark. Not saving enough for an extended life of retirement could mean scrambling for funds later.

Do you have enough?

A good way to start could be to look at your current monthly expense and the savings accumulated. One thing to remember is that the post-retirement expenses could be 1.5-2.5X higher than what you incur at present. This depends on the prevalent rate of inflation.

Let us take an example. Say you incur expenses of Rs 50,000 per month at present as a 36-year-old working professional and have saved Rs 5 lakh. You will need to invest at least ~Rs 38,000 per month to accumulate a corpus of Rs 5 crore, taking into account an inflation rate of 10% and the current rate of investment returns of 10%, and a 6% rate of return after you retire. But even this corpus may only be adequate up to the age of 82 years, considering a 2.5X increase in the monthly expenses by retirement.

Standard Chartered’s retirement calculator could be one tool to find out how much funds will be required to retire comfortably.

Where to invest for a long retirement?

Insurance and mutual funds are two options to explore. The monthly investment amount will depend on your age, lifestyle, existing funds, and a 35-40 year post-retirement life. Here’s a glimpse into the product options:

Life insurance: Insurance companies offer whole life term insurance up to the age of 100 years, which means that your dependents will receive legacy benefits in case of death. Whole life Unit-linked insurance plans (Ulips) that offer investment and insurance could be another policy to consider. Here, it could be beneficial to look for debt-focussed or balanced fund Ulips because they are typically less volatile. You could explore legacy wealth creation for a long life through the insurance product options offered by Standard Chartered.
Mutual funds: Systematic investment could help tide over financial crisis after retirement. Some MFs offer the benefit of tax exemptions and most offer quick redemptions, so this is an option to consider for a long retirement life. Typically, MF offerings that one invests in after the age of 60 are conservative in nature, meaning that they invest in fixed-income instruments with steady returns. If this sounds complicated, Standard Chartered’s SC Invest platform offers multiple MF investment options to choose from.
Health insurance: As you age, you may be prone to health risks. Medical insurance that covers critical illnesses, hospitalisation, and pre-existing illnesses with a shorter waiting period (up to two years) could be considered. However, one point to remember is that insurance premiums increase with age. So, buying medical coverage earlier and renewing it annually without breaks could help save costs. Standard Chartered offers a slew of health insurance plans which could safeguard against high medical expenses post retirement.

Since the sources of income are limited once you retire, investment products have a bias towards low-risk, guaranteed asset classes. However, it could be advantageous to keep track of market developments to make suitable investment decisions. Standard Chartered’s money insights podcast could help you make an informed choice.

Accumulating funds more than what is required may not hurt. This could be passed on as legacy funds to the next generation. But not having enough capital could increase dependency on siblings and children. Planning well in advance could help build a reserve that is adequate even 30 years after retirement.

Disclaimer:

This article is for information and educational purposes only. It is meant only for use as a reference tool. It has not been prepared for any particular person or class of persons. The products and services mentioned here may not be suitable for everyone and should not be used as a basis for making investment decisions. This article does not constitute investment advice, nor is it an offer, solicitation, or invitation to transact in any investment or insurance product. The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment. Prior to transacting, you should obtain independent financial advice. In the event that you choose not to seek independent professional advice, you should consider whether the product is suitable for you. You should refer to the relevant offering documents for detailed information.

Standard Chartered Bank is a distributor of mutual funds and referrer of other third-party investment products and does not provide any investment advisory services as defined under the SEBI (Investment Advisers) Regulations, 2013 or otherwise. Investments are subject to market risk. Read scheme-related documents carefully prior to investing. Past performance is not indicative of future returns.

Standard Chartered Bank, India having its principal place of business at Crescenzo Building C-38/C-39 G Block, Bandra Kurla Complex, Bandra (East), Mumbai – 400051 is a licensed Corporate Agent of ICICI Prudential Life Insurance Company Limited (IRDAI Reg No. 105) for life insurance products; Royal Sundaram General Insurance Co. Limited (IRDAI Reg No. 102) and ICICI Lombard General Insurance Company (IRDAI Reg No. 115) for general insurance products and Niva Bupa Health Insurance Company Limited (IRDAI Registration no. 145) for standalone health insurance products vide corporate agent number CA0028. All insurance products are underwritten by the respective insurance companies. Participation of Standard Chartered Bank clients in any insurance scheme is purely voluntary and is not linked to the availment of any other banking products or services from the Bank. The benefits/ features of the products are indicative only. For more details on risk factors and terms and conditions, please read the sales brochure carefully before concluding a sale. Insurance is the subject matter of solicitation.