This episode has little to do with either business or macroeconomics but we chose this topic because it touches all our lives – yours, your parents’ or if you are young enough, then your grandparents’ lives too. We try and answer the question - how much do you need to fund your living expenses after retirement? If you are not a government servant assured of a pension, you are probably saving up while you work, investing in stocks, mutual funds, maybe gold, a roof above your head, and so on. Once you retire, you will have to dip into these savings and investments every year. Historically, various analyses have said withdrawing 4% of your retirement corpus in the first year and then bumping up that percentage slightly every year thereafter could give you enough to live on till the end of your life. But for a country like India, and with current inflation and estimated average longevity, is that enough? Globally, withdrawing a certain part of your retirement corpus, starting with 4% in the 1st year, would make your funds last you about 30 years. So, if you retire at 60, and expect to live till 90, then you are all set. A recent research paper by Rajan Raju and Ravi Saraogi showed how the global standard can’t be used in the India context. The authors argue that while criticism has been aplenty on how the 4% figure applicable in the US context is unsuitable elsewhere, there has been little to show what exactly the ideal number for India would be. Their research concludes that even a withdrawal rate of 3.5% for an Indian citizen is bound to fail over 35 years – and obviously, they warn that if your portfolio of savings includes too much investment in equity, it could potentially give you healthy returns, but Indian markets are so volatile that you could also end up losing capital. And if you are heavily dependent on fixed deposits, then the returns could be too low, given the tax implications and the effect of relatively high inflation. The authors of the paper say that a rate of 3-3.5% is more sustainable for the Indian context and that they’d likely stick with the 3% referred to earlier in this episode to be on the conservative side. Did you know The first savings bank in India was established in Calcutta in 1833-34 by the government, according to the National Savings Institute. However, the government Savings Bank Act was passed in 1873, and it was in 1882 that the Post Office Savings Bank of India came into existence. Last week’s quiz And for the quiz question of last week, Why do countries want to export more and more and why not settle for the domestic market, we received several well thought answers. Thank you all, for the respect you accorded us. And many of you got it absolutely right. The most obvious part of the answer is why would we not go and get a bigger market for our companies? If there is money to be made, let’s make it. The other important part of the answer is to be able to earn foreign exchange to support our imports. There are things critical to our existence that we are dependent on the outside world for. For example, we import a lot of active pharmaceutical ingredients or APIs to make our medicines, from the simple paracetamol to life-saving drugs. 85% of our oil needs come from imported crude oil. We need to have a stock of foreign exchange to fund our imports and exports help us earn this forex. Exports help bring down the trade deficit that has an impact on our current account. When we have a lower deficit or even a surplus that is favourable for the rupee against other currencies such as the US Dollar. That makes our imports cheaper. Quiz question for this week What was the interest rate offered by the first savings bank account offered by the government in 1833-34? 00:00 - 00:25 – Intro 00:26 - 01:39 – Withdrawing from retirement corpus 01:40 - 03:15 – Findings of research paper by SSRN 03:16 - 19:41 – Interview with Businessline’s Aarthi Krishnan 19.42 - 20:19 – What is indexation? 20:20 - 20:41 – Did you know? 20:42 - 20:50 – This week’s question 20:51 - 22:07 – Last week’s question Links: https://www.thehindubusinessline.com/opinion/the-great-indian-retirement-challenge/article67879610.ece https://www.thehindubusinessline.com/opinion/the-great-indian-retirement-challenge/article67879610.ece Script and presentation: K Bharat Kumar Production: Shibu Narayan