"If you are retiring at 40 and expecting that money to run for 50 years, you need to have done your math very, very well because this does not include any shocks to the system. Even this 4% number of the corpus, which is a rule of thumb, is simple math. If you want to retire, take your annual expenses, add tax on top of it, multiply by 25. If you have that money, think about retiring, says Atul Shinghal, CEO, Scripbox.
First, let us talk about investors who are around 40 years of age and the kind of financial rapport they have with their partners because a lot goes into financial planning specifically at this age. When we talk about financial compatibility, financial sharing and financial comfort, how important is it to be aligned with your partner especially for the goals which can be combined for both of you?
This is most relevant. This is the sort of age when you go from me to we. You have been thinking about building your career, you have been thinking about getting stability and now you need to start worrying about or at least thinking very deeply about parents, children and yourself.
If you think about money requirements in three buckets, what do you need for yourself and your spouse? How do you think about money together? What do you need for your children's education, maybe their marriages? What do you need for your parents? And there are different buckets with different timelines. That is a systematic plan to figure out where you are, how much have we already saved up? What are our assets? What are our requirements, inflation adjusted over the next 40, 50 years?
Remember at 40, you are likely to live another 50, 60 years with today's healthcare. So how do you plan that journey in a systematic manner as a couple? A lot of couples' planning is as much as they are financial goal related, they are also equally related to the expenses you do at this point in time.
How much are you spending on your needs and how much are you spending on your wants? Are you chasing a bigger car at the cost of your children's education? Are you chasing a more fancy address at the cost of your retirement? These decisions taken as a couple are really important. And I think beyond just the decisions and planning around your expenses and your investments, it is also just sheer awareness that what can you actually afford as a couple?
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Lastly, this is about sharing even what you have. There is a standard without sounding sexist in this, that no, no, this only a man handles this. I think that is a fundamentally wrong answer. The spouse should be equally involved with things. And life is ephemeral today. Covid taught us that. Are your passwords available to your family? Have you put enough nominee details on all your accounts? Do they have access to what you currently have in terms of your insurance, your network, your ESOPs?
So just having financial awareness, a financial plan, and a joint ownership of outcomes, which are both expenses and investments is really important. This is far more easily said than done, but I would highly recommend this to everybody.
At this age, how important it is to have an extra income because in order to be successful, especially in your career, one needs to upgrade and up-skill. How important is this and also the concept of a second income because this can be like a second inning if at all you plan an early retirement, but then tell us how to go about it.
It depends very much on the need, I think there are two parts to it. For you to be relevant in today's world, you need to be continuously up-skilling, because somebody, possibly much younger, can do your job faster, better, and you need to use your experience and your knowledge to stay ahead of the game.
In terms of second income it depends on your financial plan. Say your expenses today are Rs 2 lakh a month, you need to retire at 60. You actually need to put aside a lakh a month to maintain that lifestyle if you have not done anything else because inflation is at 7-8% in India, medical expenses need to be added to that.
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Some of the expenses might come down in terms of children's education, but other things will get added. So the moot point is that the second income should depend on what you already have. I would rather that you do more with your existing income and invest it well, rather than chase one more income. So up-skill for the reason of doing better at your job, earning a higher salary, and let your money work for you. So rather than you working harder for money, let your money work for you, invest it systematically in an asset allocation model.
If you are 40 and earning a reasonable salary, by the time you are 60, you could build a corpus of Rs 10-12 crore, if not more, by just investing a lakh. So while the Rs 10 crore looks like a very far away number and scares you, if you break it down, you can get there and that is really important. Our advice to all our customers is get started, keep investing and remain invested.
So those three mantras that get started now, if you have not started yet, keep investing and let your money work for you rather than look for only a second income. If it is available, so be it, but that should not be the primary driver for how you will save money and invest.
Just as a rule of thumb, if you have got post-tax annual expense of about Rs 20 lakh, you need a minimum corpus of about Rs 5-6 crore just to maintain that lifestyle, inflation adjusted. So keeping real about what that number is important. While retirement is an absolutely fantastic goal based on your needs and wants and what you want to choose, if you want to live off your financial savings and that second income is the returns from those savings, dipping into anything more than 4% of your corpus, I feel 75 is underestimating it.
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Our own parents, God bless their soul, live to 80, 85, 90, and that number is only increasing. So if you are retiring at 40 and expecting that money to run for 50 years, you need to have done your math very, very well because this does not include any shocks to the system. Even this 4% number of the corpus, which is a rule of thumb, is simple math. If you want to retire, take your annual expenses, add tax on top of it, multiply by 25. If you have that money, think about retiring.
People are getting laid off. What will be your message to the investors, viewers, and the users right now?
So I think the answer is in three parts. God forbid, if you do get laid off, we are hoping that you've listened to people like us earlier and actually have an emergency corpus of six months of expenses. Keep that money aside. You should not have dipped into it earlier. Cut your wants, bring your expenses down. Absolutely be ruthless. Try to stretch that money to a year rather than just six months. So, be extremely prudent about travel, holidays.
Secondly, my advice at this age, I can afford to give this, is pick a job. Very often I have seen people get stuck on that I was already earning Rs 40 lakh, how can I recalibrate? My net worth is coming down. My self-worth is coming down. If somebody is paying you Rs 30 lakh, pick that job today. You will come back, if you are confident of who you are, you will come back rocketing fast. So do not get stuck in a number in your head. It is easier to just get started again because you owe it to yourself and your family.
The third thing I would say is talk to the family, make them aware and I have seen people who do not tell their family when they are laid off because they think it is either an ego thing, but I would rather that you let the family participate and make them aware of the pain we are all going through as a family because expenses are managed by everybody. So while income might be managed by one or two people, just making sure that everybody's aware and you are doing this together. So stretch your money which you have, take a lower paying job if that is what is required, involve the family in the situation as early as possible. They are very resilient.
What do you have to say?
We keep saying this, time in the market and not timing the market. Just remain invested. People like us who have been around for slightly longer have seen the 2000 meltdown, the 2008 crisis, corrections over the year. We have seen Covid come and hopefully go. We have seen the Ukraine war. We have seen the SVB crisis. These are events which will happen.
In the long term, India is a growth economy. Remember, nominal growth is what matters to us, not the real growth from an investor's perspective. Well-run companies in India will grow at 12% to 14% to 15%; 5-6% of real growth, 5-6% of inflation. If your portfolio returns, and with great fund managers on your side, we are very confident as wealth managers that our customers, as long as they remain invested with a plan for the long term, these are all things which will happen. So do not panic. This too shall pass. And more will come. It is not that this is the last big event. More such events will keep happening. Let that not disturb your mental peace. Sleep easy. Just remain invested with a plan.
