Vijay Chandok, MD and CEO of ICICI Securities says the retirement concept is hugely underpenetrated and underserved in the Indian market despite its significant need because of people’s increasing longevity.
Chandok, speaking at the 40After40 Retirement Expo in Mumbai last month, points to the challenges arising from the longer life span with improved healthcare and support.
“When we engage with clients, we try to bring the subject of retirement into discussion. Invariably, the response we get is, ‘You know, that’s not for me. I have a long way to go. Everyone thinks about the next few years; nobody thinks about the next 30, 40 years,” he says.
Chandok stresses people shouldn’t ignore the aspect of longevity in retirement planning. Retirement planning is not a simple process but a complex and serious one that requires proper assessment of needs and wants like health, child’s education, wedding, house, car, etc.
So, how can a person reach his short- and long-term financial goals comfortably?
Chandok explains that one should look at retirement in two parts: accumulation and monetization phases.
He says, “The longer you give to the accumulation phase, the better the monetization capability. The objective in the accumulation phase is to have so much monetization capability that you beat inflation.”
Choosing the right investment vehicle is critical. But what is more important that one should look at is the post-tax inflation, not the headline inflation reports in newspapers.
“You should look at medical inflation, education inflation. Those are specific items that you should worry about rather than just looking at wholesale or CPI inflation,” he adds.
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Interestingly, the only asset class that can help beat inflation is equities. Therefore, in the accumulation phase, one should add equities in the portfolio for long hold, not just fixed-income assets.
It provides two advantages: the magic of compounding and the opportunity to understand and appreciate equity, one of the volatile and risky asset classes. “But when you invest over long periods, it smoothens out. So, the impact of volatility is minimized with a length of investment. So start early,” stresses Chandok.
Higher allocation in equities initially will ensure the corpus maximizes gains from compounding for higher monetization later. Hence, discipline in savings is as vital as knowledge. Chandok emphasized portfolio diversification to minimize risks.
Besides savings and investments, a health plan is critical to retirement planning.
Chandok says people often don’t think about it because they are healthy or have a company cover. But once they hit 55 or more, they may face health issues; at that point, the company’s health plan would be nearing its end. It could be tough to get new health insurance at that age, or the premiums could be higher. Similarly, one should also consider a life cover.
Finally, Vijay Chandok emphasized regular portfolio evaluation to ensure the investments align with goals and whether they need further adjustments to keep up with the market trends.