5 numbers you should know for a comfortable retirement

Retirement is often imagined as a long holiday. It isn’t. It is a 25-30 year financial project with no salary slips, no annual increments and very few second chances. Yet most Indians plan for retirement as though it were a brief epilogue to their working lives.

They underestimate how long they will live, how much they will spend and how fiercely inflation will gnaw away at their savings. Retirement planning is, in many ways, an exercise in making friends with inconvenient truths. Here are five numbers that can help you do exactly that.

1. Plan for 25-30 years in retirement

Many people look at India’s life expectancy at birth of 73 years and assume they need to plan for only a decade or so after retirement. That’s a dangerous misreading of statistics.Life expectancy at birth is an average that includes everyone, including those who do not make it through childhood and early adulthood. If you are already 40, you have crossed several mortality hurdles. In actuarial terms, your life expectancy has moved up.This is known as conditional life expectancy. Simply put, the longer you survive, the longer you can expect to live. Every decade you cross tends to add about three years to your expected lifespan.

The numbers tell an interesting story. A 40-year-old Indian can expect to live till about 76, a 50-year-old till 79 and a 60-year-old till 81. For urban, educated and upper-income households with access to better healthcare, these numbers are likely to be higher by another three to four years.That means retirement is not a 10or 15-year sprint. It is a marathon that can easily stretch into your late 80s. If you retire at 60, plan for at least another 25 years.

Think of retirement not as the final chapter of life but as a second adulthood — one that could be as long as the first.

2. Target at least 80 per cent of your pre-retirement expenses

Will you spend less after retirement? The answer is both yes and no. Some expenses will disappear. There may be no commuting costs, no work wardrobes and perhaps fewer expenses related to raising children. But new spending priorities emerge. The first phase of retirement often turns into a season of delayed dreams.

Every day is a Saturday and there is no Monday waiting around the corner. People travel, pursue hobbies and spend on experiences they postponed while working.As the years pass, the appetite for adventure may diminish, but another expense begins to climb relentlessly: healthcare.Retirement spending changes shape; it does not vanish.Those who plan for a retirement income of less than 60 per cent of their current expenses should prepare for significant lifestyle compromises.An income equal to 80-90 per cent of current expenses offers a far more comfortable outcome. It leaves room for travel, leisure and tackling rising healthcare costs while preserving much of the lifestyle built during one’s working years.Retirement should not feel like being downgraded from business class to a crowded bus.The aim is not merely to survive the sunset years but to enjoy them.

3. Factor in at least 7 per cent inflation every year

Inflation is the silent thief of retirement. It steals gradually, almost politely, and then one day leaves retirees wondering where all their money went.Working individuals have a defence mechanism. Their salaries usually rise over time. Retirees do not enjoy that luxury. Their expenses keep climbing even when their incomes stand still.The threat is particularly severe because your personal inflation may be very different from the inflation reported in newspapers.A restaurant bill that costs more than before may be annoying. A medicine bill that doubles can be financially devastating.

Healthcare inflation has persistently outpaced general inflation and is likely to continue doing so. Ironically, it arrives just when retirees need medical services the most.This is why retirement calculations should assume an annual inflation of at least 6-7 per cent.Assume a lower rate, and you may build an inadequate corpus that runs out too early. Assume an excessively high rate, and you risk denying yourself too much during your earning years.Retirement planning is a balancing act. The inflation assumption you choose can determine whether your nest egg lasts the distance or runs out of breath halfway through.

4. Keep equity exposure at 70 minus your age

Retirement portfolios should be diversified. Putting all your money into fixed deposits may feel safe, but safety without growth can be a slow form of financial erosion.Equities play an essential role because they help savings outpace inflation.

Without some exposure to growth assets, money loses purchasing power over time.But how much equity is enough?A simple thumb rule is to keep equity exposure equal to 70 minus your age. A 30-year-old should have around 40 per cent of retirement assets in equities. At 40, the allocation should be about 30 per cent. By age 60, it should fall to roughly 10 per cent. Some market experts may consider this excessively conservative.

Yet retirement planning demands a wider lens. Many investors overlook the fact that they already own equities indirectly.

Provident Fund investments, for instance, have a portion allocated to stocks. What appears to be a pure debt holding is often a hybrid portfolio.The objective is not to maximise returns but to minimise regret. Retirement money should grow steadily, not behave like a roller-coaster that keeps you awake at night.

5. Save at least 20 per cent of your income for retirement

Retirement planning begins not at 50 but with the first salary cheque. A useful benchmark is to channel at least 20% of your income towards retirement savings.That figure may sound intimidating, but many employees are already halfway there. Contributions to Provident Fund and the National Pension System, combined with employer contributions, do much of the heavy lifting.If you save 10 per cent of your salary and your employer matches another 10 per cent, you have effectively achieved a 20 per cent savings rate.The real challenge is staying the course. Too many people raid their retirement accounts for short-term goals or withdraw Provident Fund balances when they change jobs. Every premature withdrawal is a blow to compounding, the quiet engine that powers long-term wealth creation.Compounding is like planting a tree. The shade arrives only if you let it grow undisturbed.Retirement planning ultimately boils down to discipline and arithmetic. Save enough, invest wisely, allow your money to compound and prepare for a retirement that could last three decades. Because the most expensive assumption in personal finance is believing that old age will be shorter, cheaper and simpler than it really is.