Even Rs 1cr won't be enough for your retirement yrs | Economic Times

You can be truly financially emancipated if you can sleep easy with the assurance that all your goals will be reached, Atul Shinghal Founder and CEO, Scripbox tells ET Wealth.Your financial freedom survey shows that people are more confident of achieving their goals this year compared to last year. What are your observations?Financial freedom is not the quantum of wealth but the quality of wealth. Do you sleep easy at night? Do you feel that your earnings and investments can help you reach your financial goals? That’s what we consider financial freedom. Our intent is to help our customers achieve financial freedom by investing right, investing with a purpose, having realistic financial goals and eventually reaching these milestones.A large number of respondents to your survey say that not having to work for money is financial freedom. Not working is akin to retirement. Is that really financial freedom?There is a romantic notion in people’s mind that not having to work for money is financial freedom. Many people see work as something they are forced to do. They feel that if they have enough money to sustain their expenses, they can stop working and win financial freedom.The question is whether they really have enough to sustain their expenses without compromising their lifestyle.Also Read: How close are you to financial freedom? Take this quiz to find outWhat could possibly go wrong here?People don’t fully realise the impact of inflation on their finances. Once you sit down with them and work out a financial plan, they realise that this concept of early retirement and financial freedom is slightly Utopian. There is a reality check that the quantum of money required over the next 35-40 years is far more than one would have calculated. At 35, a person might say he aims to retire at 45. He may be expecting his portfolio of Rs 50 lakh to grow to Rs 1 crore in 10 years. Now Rs 1 crore might seem like a large figure, but will not last 35-40 years in retirement.How can this gap between what people want and what the reality is be bridged?One of the purposes of financial planning is to explain to clients that the romantic version of financial freedom has a temporal aspect. When a planner asks a client at what age he thinks he would retire, the answer may be 45-50 years. But when you look at their obligations and expectations, the retirement age is closer to 55 or 60. Even if you increase their investments and pare some goals, the retirement age is rarely before 55. Yes, there are exceptions where people are able to realise their financial goals early, but for most people early retirement remains a pipedream.Also Read: Follow these 4 steps to achieve financial freedomYou say inflation is a big reality check for investors. What should be the inflation factor when planning for long-term goals?Anything between 6% and 8% would be a fair estimate of inflation over the long term, with a certain amount of emergency corpus kept aside for unforeseen expenses.Where do people usually go wrong when calculating their retirement needs?When projecting future expenses, people often miss out some less noticeable but important expenses. Maintenance of the house and vehicle, for instance, can get missed. Plus, you need to account for healthcare, which is an expense that is not only growing at a faster clip of 12-14% but will progressively take more space in the expense basket as the person grows older. So, not only is the cost of healthcare rising but your need for healthcare will become more pronounced. This aspect needs to be fully factored into the financial plan.At the same time, there is also some balancing because many other expenses come down during retirement. You are no longer spending on children’s education, their lifestyle and other expenses as they have grown up and started earning.More than 22% of the respondents also feel that financial freedom is not being financially dependent on anybody. What do you have to say about this?Financial dependence means different things to different people. For an older parent, not being dependent on their children for anything is financial freedom. That is the whole purpose of retirement planning. For this set, financial freedom is an emotional need where the person does not want to be dependent on his children. Even if he is not leaving a legacy behind, he doesn’t want to burden his children with his own expenses.On the other hand, for a youngster who has just stepped out of college and started earning, not being dependent on his parents for money is financial freedom. These young people are quite confident about their future and filled with a sense of independence. At this stage there is a need for prudence. We try and nudge them to save more and invest with a purpose.For some people, even having enough money to spend can mean financial freedom. These people may have come from a very difficult economic background and are now in a far better and more financially sound position. For them, the very thought of being able to spend on whatever they want amounts to financial freedom.How important is being debt free for financial freedom? Almost 7.5% of the respondents also say that.You don’t need to be debt free for financial freedom. As long as you have sufficient earnings to service the debt you have taken and the debt is to create an asset, then debt will not adversely affect your financial freedom. In fact, acquiring a house with a home loan or upskilling yourself with an education loan will actually help you attain financial freedom faster.