‘Your parents are not your emergency fund, children not your retirement fund’

Everyone has financial goals. And most individuals believe their little bit of savings and investments would help them to achieve those goals. However, without prioritising goals most individuals would find it difficult to meet their important goals, said Deepesh Arora, Founder and MD, Silverline Wealth Management. Arora was talking at ET Wealth Investment Workshop held in Ahmedabad on December 13.

He told the participants at the workshop that banking on children for a comfortable retired life is a big financial mistake. Many people believe that if they provide the best of everything to their children and ensure their success, they will be able to have a comfortable retired life. This need not be true, said Arora. The only way to make sure that your kids take good care of you is to have a huge retirement corpus, he told the amused participants at the workshop.

He emphasised that retirement is the most important financial goal in a person’s life.

“Your parents are not your emergency fund and your children are not your retirement fund. Every investor should understand this and act on it,” said Deepesh Arora.

“To live a happy retired life, you have to make your hard-earned money work hard for you,” said Deepesh Arora.

Speaking about the importance of starting early, Arora showed some calculations to the participants to convince them that even a small delay can spoil one’s retired life. He said that time and compounding are two things that can fight inflation. “Inflation is a monster that can eat into your corpus and make you poor. I have seen rich people living miserable retired lives. So, you have to use time and compounding to counter inflation,” Arora said.

Deepesh Arora said that on an average an individual has 30 years to work and more than 30 years of retirement. With increasing life expectancy and rise in medical inflation, retirement planning has become really tricky and more important. “You need 30 years to fund your 30 years. You have to invest for 30 years to earn enough to survive for 30 years of retirement. Saving money will not help you. You have to invest smartly or be ready to compromise on your lifestyle later,” Arora said.

“In your 20s, you should invest 15-20% of your income, in your 30s, you should invest 25-30%, in 40s, you should invest 35-40%. This is ideally what you should do at different stages of your life. Starting late also means that your risk profile will not be as aggressive as it would be in your early 20s, so you lose out on those extra returns which might compound to big numbers,” Arora told the participants.

One of the participants asked Arora if one should be more aggressive to reach a desired corpus if they started late for the retirement planning. Deepesh Arora replied that if one has less time, s/he should be extra careful and not take any extra risk on their investments.

“You should stick to 100 minus age formula to invest in equity and debt at all points in your life. When you have less time left for a financial goal, you shouldn’t be adventurous.”