Retirement, pension andinvestment!
Very few of us truly understand the value of an indexed pension, which essentially means that the pension amount is linked to the inflation and is raised by a similar amount every year. The current generation of retired government employees (or soon retiring)would be enjoying this indexed pension.
However, the private sector does not usually give the benefit of this pension to its employees. Also, the government has stopped the indexed pension scheme for newjoiners.Unfortunately, most of us do not understand the financial implication of the same in our future lives.
Let us first understand thevalue of an indexed pension.
If a person retires today at 60 years of age withRs. 25,000/month of indexed pension, and lives till 90 years, what will be total money paid to him by the government (assuming retired government employee). Let us assume an average inflation of 9% for next 30 years also assume that the pension amount is raised by 9% every year. In such ascenario, the total money paid to the employee in 30 years of retired life would amount toRs. 4.1 crore!!!And you thought Rs. 25,000 per month is a small amount! If the starting pension amount isRs. 40,000/month, the total payout comes to Rs. 6.5 crores.
If you are going to retire in 10 years time, and want Rs. 1 lakh/month of indexed pension for 30 years, the total payout comes out to be Rs. 16 crores.
Unfortunately, most of us working in the private sector would not have the benefit of such a pension.
Over and above the pension, most of us would have to pay for our medical expenses from 60-90 years of age. Assuming 2 cataract surgeries, 1 hernia surgery, 1 prostate surgery, 30 years of routine medicine, tests and check ups, 5 hospital admissions for infections, and one organ transplant/cancer/major illness in a corporate hospital,**the total cost in todayâs money would be roughly Rs.1-2 crores.If you are going to retire in 10-15 years of time, with no medical cover, assuming aninflation of 6% in medical expenses for next 40 years, the total amount would be somewhere around Rs. 10-20 crores for one person.**You can add Rs. 5-10 crore for your spouse.
Some of you may argue that not everyone would need an organ transplant. However, medical technology will advance a lot in next 25 years, leading to many newer and expensive treatments, which would improve your longevity, but at a high price. A longer life will also mean more medical treatment and surgical procedures than your parents. There were almost nil liver transplants 20 years ago in India, whilehundredsare performed every year today. An artificial heart transplant today costs more than a crore, while liver transplant costs 20-30 lakhs, not including the cost of medicines for the rest of life. Who knows in 20-30 years time, you may get any organ produced artificially in 50 lakhs to 2 crores!
These may seem mind boggling numbers to some of you. However, they are not! Rs. 1 crore would be a relatively small amount 30 years from now. What was the value of Rs. 1 lakh in 1980, and what is the value today?
This brings us to the most important question. How do you plan for your retirement? Any answers?