Retirement At 60 Is Not The Problem, Running Out Of Money At 75 Is

For decades, turning 60 has been treated as the financial finish line. The salary stops, the retirement corpus takes over and fixed deposits are expected to carry a person through the rest of life.

But there is a bigger question retirees need to ask: Will the money last?

Retirement planning is no longer just about accumulating a large corpus by 60. It is about making that money work for another 25 to 30 years, while expenses rise and healthcare costs become harder to predict.

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"Retirement at 60 is not the problem. The real test is whether your money retires before you do," Charu Pahuja, CFPCM, Director & Chief Operating Officer, Wise FinServ, told NDTV.

The Rs 1 Crore Retirement Corpus May Not Be Enough

Consider a couple retiring at 60 with Rs 1 crore and monthly expenses of Rs 50,000.

At first glance, the corpus may appear comfortable. If they withdraw Rs 6 lakh in the first year, they are using 6 per cent of their initial corpus.

But inflation does not retire with them. At 6 per cent inflation, Rs 50,000 a month today would become nearly Rs 1.20 lakh a month by age 75. That means the same lifestyle would cost more than twice as much in 15 years.

If the retirement portfolio earns around 5 per cent after tax while withdrawals rise with inflation, a Rs 1 crore corpus could run out around the mid-seventies.

That is a dangerous point to run out of money. Returning to work may not be practical. At the same time, medical expenses can rise sharply with age.

Why Keeping Everything In Fixed Deposits Can Backfire

For many retirees, fixed deposits are the obvious choice. They are familiar, predictable and provide regular interest income.

But predictable returns do not automatically mean adequate returns. If the post-tax return on a portfolio remains below inflation, its purchasing power falls every year. The amount in the bank may continue to rise, but what that money can buy keeps shrinking.

Pahuja said retirees therefore need to think beyond simply choosing investments. "This is why I believe retirees need a withdrawal strategy, not merely an investment strategy," she said.

The question is not only where the retirement corpus is invested. It is also how much is withdrawn, when it is withdrawn and which investments are sold to meet those withdrawals.

A Three-Layer Strategy Can Help

One approach is to divide the retirement corpus into different layers based on when the money may be needed. The first layer is for immediate expenses. It should provide stability and cover a few years of essential spending. Liquid and predictable instruments, including suitable fixed-income options and the Senior Citizens' Savings Scheme, can form part of this bucket. Annuities may also be considered where they fit an individual's needs.

The second layer is for medium-term income. This can include high-quality debt, hybrid and multi-asset strategies. The objective is to generate income while retaining some potential for growth.

The third layer is the longevity bucket. This is the money that may be needed much later in retirement. Depending on a person's risk capacity, some equity exposure may be required even after retirement.

A 60-year-old does not necessarily hold equity because they want to make more money by 70. They may need some growth exposure because their money could have to support them until 85 or 90.

Healthcare Can Change The Retirement Equation

Medical expenses deserve a separate place in retirement planning. Health insurance should ideally be secured before retirement, while a separate medical and emergency reserve can provide an additional cushion.

One large medical bill can otherwise force a retiree to withdraw from long-term investments at the wrong time. "Insurance should ideally be secured before retirement, supported by a dedicated medical and emergency reserve," Pahuja said.

Healthcare planning also becomes important because retirement expenses do not necessarily remain stable. A retiree may spend less on some areas but significantly more on healthcare later in life.

The Market Fall Problem

There is another risk that is often overlooked. Imagine a retiree needs money during a sharp stock market correction. If there is no adequate cash or low-risk reserve, the person may have to sell equity investments when prices are down.

That can permanently damage the retirement portfolio. Having enough money set aside for near-term expenses can reduce the need to sell long-term growth assets during a market fall.

This makes asset allocation and withdrawal planning just as important as the size of the retirement corpus.

Retirement Planning Does Not End At 60

Retirement planning should not stop on the day a person leaves work. Expenses change. Inflation changes. Markets change. Tax rules can change too.

The withdrawal rate and investment mix may therefore need to be reviewed regularly. Pahuja said retirees should not treat the retirement portfolio as a set-and-forget investment.

The bigger objective is to ensure that the corpus continues to support the retiree as life expectancy increases. 

India's ageing population makes the issue even more important. UNFPA has projected that people aged 60 and above could account for more than 20 per cent of India's population by 2050. That means retirement adequacy could increasingly become a family as well as a wider social issue.

The goal, therefore, should not simply be to reach 60 with the biggest possible corpus. It should be to reach 75, 85 and even 90 with financial independence, dignity and choices still intact.