IDFC FIRST Bank presents Outlook Money 40 After, Nikhil Varma, Head - Bancassurance, Wealth Management, IDFC FIRST Bank, explores key strategies for achieving financial independence.
From creating a second income stream to managing expenses and harnessing the power of compounding, his insights can help you build long-term wealth.
Read more: https://www.outlookmoney.com/retirement/news/idfc-first-banks-nikhil-varma-explores-smart-strategies-for-achieving-financial-independence
#IDFCFIRSTBank #OutlookMoney40after40 #OutlookMoney #CelebrateRetirement
From creating a second income stream to managing expenses and harnessing the power of compounding, his insights can help you build long-term wealth.
Read more: https://www.outlookmoney.com/retirement/news/idfc-first-banks-nikhil-varma-explores-smart-strategies-for-achieving-financial-independence
#IDFCFIRSTBank #OutlookMoney40after40 #OutlookMoney #CelebrateRetirement
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LearningTranscript
00:00Well, you're at a spot right now, where I all understand that two days of overwhelming
00:13information, right?
00:14I mean, it's so much awareness, so many speakers speaking, and so many valuable inputs.
00:18And sometimes you're in a position where a speaker really doesn't know, okay, fine, everything
00:23is already out.
00:24Everybody is already aware of everything.
00:25Now, what is more that I can add to?
00:28And you're also in a spot where I know that most of you are just awaiting the most celebrated
00:32speaker to come and chat with you and engage with you.
00:35So it's a very difficult spot, but still, let me try and give you some closing remarks,
00:42I would say, or a wrap up commentary, okay, right from the session that began yesterday
00:49in the morning.
00:50Nidhi, Indranil, Mr. Vaidyanathan, and a lot of us today, I heard Sriram, and some of those
00:56efficient great speakers who've been, I've been looking forward to for so many, you know,
01:02years, all of them have given some real great commentary.
01:05So now, I will just give a quick wrap up.
01:08So all of you now know, now we all know how to do it, or probably what to do it.
01:13But sometimes you will, you'll get lost.
01:15Okay, fine.
01:16What next?
01:17Right?
01:18These are some steps that you need to know.
01:19So I'm going to spend some 10 minutes on those next steps.
01:24So we all spoke about living too long.
01:27So what does it exactly mean?
01:29All right.
01:30I mean, we all know that probably in the 40s, 50s, the life expectancy was obviously less.
01:36And today, you must have heard the life expectancy is about 73, 74.
01:40Well, honestly speaking, yesterday, I also heard Mrs. Shenoy speaking that women are
01:45outliving men.
01:47Okay.
01:49All right.
01:52I'll go back on stage.
01:54So I was, I always talk about this in a lighter moment to everybody.
02:00So we all love our culture, love our heritage.
02:04We all love our festivals.
02:05Okay, so Karvachud is working both ways now, okay.
02:08So it's not just men who's going to live longer, it's also going to be your women who's going
02:13to live longer.
02:15So women today are averaging about 74, 75 and men are in the range of what 71, 72.
02:20What exactly means is, just remember this very simple, at least the math or data suggests
02:26that every 10 years, your life expectancy is going up by four or five years.
02:30Okay.
02:31And 65% of India today is under 35 years of age.
02:34What does it mean?
02:37It clearly means that a couple of decades away, so we're talking about 40 after 40,
02:42probably we're looking at 20 years, but what if it's beyond that 30, 40, and there's a
02:48chance that you will all cross 100 over the next 30 years, people will start, people will
02:52start living that longer.
02:55So yes, like what Sumit Madan in the afternoon was saying, it's an insurance wake up call.
02:59It's a wake up call.
03:00You have to really plan that much in advance.
03:04So also remember, of course, yesterday we've been hearing retirement, right?
03:08Nobody wants to get retired.
03:09We just heard another gentleman talking about it.
03:12Nobody should retire.
03:13Of course you will not retire.
03:14So what are we talking about is financial independence is about a steady second income.
03:20Of course, you will all do something alternatively, but still a steady second income is important.
03:26So what is really happening?
03:28Look at this, the average member of household, which was in the range of about six-ish a
03:33few decades back is now about four and a half.
03:36Now 57% of people believe the retirement company will exhaust in 10 years.
03:41We heard this over the last two days and then that's really a very, very big reality and
03:48we'll talk about in the next slide.
03:51And 57% of Indians today still believe that their children will take care of them.
03:58Now of course, the family ecosystem is very, very strong in India.
04:03The social ecosystem is very, very strong, but we all are getting urbanized in our thought
04:08process.
04:10Today if you look at it, we are getting into more urbanized culture and obviously our children
04:16from the rural India are coming to the towns and towns to cities and today it's a global
04:21world.
04:22We're all probably traveling abroad, living abroad and so on and so forth.
04:25So the dependency on children, obviously like we all know, I have two daughters and I wouldn't
04:32want to be a burden on them, right?
04:36I mean, we take care of our parents.
04:37That's because of the way we've all been brought up.
04:40But that's not going to be a reality maybe 10, 20, 30 years from now.
04:44So it's very, very important that today's generation, the forties, fifties or in thirties
04:49also start realizing that we will have to be on our own, right?
04:52We are going to live till 80, 90 probably.
04:56And how will we ensure that steady income?
05:01And of course we heard about medical inflation, probably today it's at its peak, 14, 15% is
05:06a big reality.
05:08So this is something which is very, very interesting.
05:12Everybody's spoken about it.
05:14But let me just put some numbers to it so that we all realize what it exactly means.
05:19Is your money really working for you?
05:21So if your monthly expense today is 50,000 rupees, what is it going to be about 25 years
05:26from now?
05:28It's going to be more than four times, right?
05:34So that's the effect of inflation.
05:36Just a 6%.
05:38That's what we talk about today.
05:39That's how your money is going to depreciate.
05:43So if you have a 25, 50,000 in the box today, it's going to be less than one fourth.
05:48That's how your money is really depreciating, I would say completely eroding.
05:55So your money is going to be less in future.
05:58We spoke about compounding, right?
06:04What is that exactly mean?
06:06I mean, just imagine if your money doubles every day, for the next 30 days or 31 days,
06:13any idea what's that number going to be?
06:16If your money doubles every day, what is that mean?
06:24You heard about compounding?
06:26So money, if it doubles, it's about more than 100 crores in 31 days, right?
06:31That's the advantage of starting early.
06:32We all heard over the last two days what compounding really means.
06:36So if you start, just imagine, I'm just giving a very simple stats here.
06:39If you start at the age of 25, just with an amount of 20,000 rupees per month, very simple,
06:47just 20,000 rupees per month, and if you invest 72 lakhs rupees, yesterday Nidhi spoke about
06:53a corpus, if you live for 80-85, Nidhi spoke about some corpus of 9 crore will be required
06:59to sustain your retirement life or your second income.
07:03So that's going to be 7 crore.
07:04But if you start at 45 and invest the same amount, you'll have to probably do three times
07:09of that investment to probably reach 1.5 crore.
07:13So 30 years of investment with 10 years of investment is clearly a wake up call, right?
07:23So important.
07:26And thanks to Seema.
07:27Seema also gave me some very good inputs on bucket strategy.
07:31Just two more slides.
07:32So just bear with me here.
07:33I'm just going to connect to you saying, now we all know too many things about last two,
07:39I said, now you're really fed up with a lot of information.
07:41Now what to do?
07:42Okay.
07:43So I've just taken a very, very simple example, ladies and gentlemen, of about just 12 lakhs.
07:48Okay, 12 lakh is the new in thing, right?
07:52India is practically going to be living in the, it's a tax-free economy now.
07:57Thanks to our finance minister.
07:59So if you are earning up to 12 lakh rupees, technically you're not paying any tax.
08:02So I've just taken the example of 12 lakhs.
08:06Is that really enough?
08:07Let's, let's figure it out.
08:08Okay, I'm going to give you some examples.
08:11So what do you really want to do now?
08:12So I've just, let's understand priorities.
08:16What are our priorities today?
08:17What is India thinking?
08:18Where does India really spend?
08:20So India's first financial priority, and this is coming out for a retirement survey that
08:25we did.
08:26Okay.
08:27And that's where you'll realize where retirement is.
08:28But let's look at it.
08:29What is India's priority today?
08:30India's priority today is still marriage.
08:33We still give importance to marriage while, I don't know whether it will remain a priority
08:39at number one or will it go down the order?
08:41We don't know as yet.
08:44Because in India, we still believe, ki main gaya tha unki shadi mein, toh yaar mujhe bhi
08:49unko shadi mein bulana padega, etc, etc, while our kids are not even interested.
08:52Ki yaar, aapke friends hai, aapko bulana hai, bula lo, mujhe kyu aap jabardasti usme involve
08:59kar rahe ho?
09:00That's what we hear today from most of our younger Gen Z kids.
09:04But still, having said that, as I said, we belong to a community where, you know, social
09:10barriers are really different.
09:13So but that still is a very important reality.
09:17Second is, of course, security and education, children's security and education.
09:21We always think, like for me, for my daughters, Aira and Rhea, I would say, I am not interested
09:28in your marriage, but I'll of course give you the best of education, right?
09:32So that's still the second security.
09:35Medical emergencies.
09:36We all heard about it, 15% inflation.
09:39Yesterday, Tapan, a single from Bajaj Alliance spoke about that every year, you know, if
09:45there is a medical exigency, 10% of India is just coming under poverty, just because
09:51of a medical exigency in the family.
09:54And that's a very, very hard reality.
09:57Improving lifestyle, right?
09:59We are transitioning into a very different kind of a standard of living.
10:06That clearly means that we spend quite a lot on our lifestyle, the way we live, the social
10:13ecosystem is also, I mean, today, we like, for example, we buy phones every three years
10:18and we spend 20, 30, 40, 50,000 bucks on a phone.
10:22Practically, there was only one instrument in the house a couple of decades back, but
10:27today we have a landline and if you have a family of four, you all have mobile phones.
10:32So practically, we're spending nearly more than a lakh, lakh and a half only on mobile
10:37phones.
10:38Retirement.
10:39Retirement, just imagine, it is still lower the priority and I'll tell you why.
10:44Of course, health and wellness, thanks to a lot of initiatives, I think health and wellness
10:48is becoming critical, which is important for our emotional and health well-being, which
10:54is going to be covered in our next speaker, the holistic happiness, which I'm sure he'll
11:00cover there.
11:03And of course, the entrepreneurial mindset in India has kick-started over the last couple
11:09of decades, so I think that is going to boom.
11:11So we are just saying that in case, if you have to plan the next three steps, from your
11:18cash bucket, we'll have to probably allocate about 40% of your money in your cash bucket
11:23and next slide, the last slide, which will tell you the breakup, you ought to probably
11:27look at 30% allocation in your income bucket and about 30% allocation in your growth bucket.
11:33Very simple, okay?
11:36Let's understand the example now, very, very simple example, guys, okay?
11:40Now as I said, I'm just, well, today, of course, just about maybe 1 crore Indians would be
11:50earning a kind of income of 12 lakhs, 12 lakhs or above.
11:56Today's India income is less than 3 lakhs per annum, okay?
11:59So I know this example will look probably four times of that, but what I'm trying to
12:04explain is, just imagine that you're earning 12 lakhs only over the next 20, 30, 40 years.
12:11I'm not making any change here, okay, I'm just making the income constant, all right?
12:17So if you are allocating 40% of that, that's your cash bucket, so it's just about approximately
12:224.8, I'm just running out of 5 lakhs, 5 lakhs is your cash bucket.
12:26Now just imagine, what do you do with that 5 lakhs?
12:28Yesterday we spoke about that, so we spoke about the priorities, your exigencies that
12:37you have, so if you do not have a health or a term insurance cover, which is actually
12:43very, very cheap, so if you start at the age of 25 approximately, okay, today's Gen Z,
12:50if you buy, you can obviously buy anytime, Sumit Madan mentioned that you can buy an
12:55insurance cover anytime, but just imagine, we're still one of the cheapest markets in
13:00India, term or health, both are very, very cheap in India, so just at about close to
13:0420 to 25,000 rupees, you can actually get a 25 lakh cover and a 1 crore term, which
13:11is throughout life, I'm telling you that you can actually cover your life for 100 years
13:18at a cost of less than 20,000.
13:21You can actually buy a 10,000 rupee health cover and get a 25 lakh family floater today
13:29that's available.
13:31The entry age of a health insurance plan today, I mean we are so advanced, there was a product
13:36that I just saw, the entry age is 125 years, which means you're going to live more than
13:41100, you can actually buy a health cover even if you're at 125 years and that's how the
13:46regulation has changed and all the new insurance players who are going to come into India thanks
13:53to the 100% FDI move by the government, it's going to be available now, affordable, accessible
14:01and available at any age band, so at 125 years, if you can buy a health cover, there's nothing
14:07like it, right?
14:08Just imagine, anything happens to you till age 100, you will still leave a legacy if
14:14you have some kind of a priority at that point in time.
14:16Just imagine, your third or the fourth generation can actually benefit from this particular
14:22simple cover.
14:23Now it's just a 5 lakh and 5 lakh also can start giving you second income, there are
14:28instruments, various instruments available which we'll talk in the next slide, which
14:32can start giving you between 7 to 8, 7.5%, even savings bank account in our bank is in
14:38the range of 7% plus, of course beyond a particular savings amount, but that is also
14:46a kind of a second income.
14:48Now what do you do next?
14:49You can also allocate just about 30,000 rupees per month for 15 years.
14:54Now I'm talking about the income bucket, okay very simple, I think Sriram mentioned about
14:59NPS, historically it's been giving what, 14%, we saw 14% return, I'm just taking a very
15:05simple 12% annualized return, which is simply diversified, so you can just diversify your
15:1330,000 rupees, which is 30% of your bucket into NPS, or you can look at your fixed maturity
15:20plans, your fixed deposits and so and so forth, and that will start giving you nothing less
15:26than at least 4 lakh per annum, which can be used across any priorities that we saw
15:31in the previous slide.
15:33It is that simple, but the problem with India, like I said, is that we cannot see anything
15:38beyond 10 years, that is where the problem starts, okay, we dip into that short term
15:45savings all the time, and that's where the problem starts.
15:49Problem is, we believe in real estate, we believe in physical gold or any kind of instrument
15:53which is near us, which we want to get a feel of, right, but are they retirement funds,
15:59are they retirement purpose, the answer is no.
16:02The problem is, there is lack of trust, we do not believe in a bucket called growth bucket,
16:10we don't believe in this.
16:12The concern is, if you allocate 30% of your income into 15, 20, 25 years and above kind
16:20of a plan, look at the corpus that you do, yesterday Nidhi spoke about an exact requirement
16:24of 9 crores, so if you just, I'm just giving an example, you just imagine India is just
16:30earning 12 lakhs for the next 20 years, and your income just doesn't grow, I know you'll
16:34start with 3-4 lakhs, but over a period of time I'm sure you'll catch up, and that's
16:3812 lakhs, I'm just making that example of 12 lakhs being constant income for the next
16:4225 years, you invest just for 30 years, 30,000 rupees, your corpus is 10 crore, and you can
16:50draw 3 lakh rupees per month, almost tax free, for the rest of your life till age 100, subject
16:59to your term, and your health cover is always available, it's that simple guys, sometimes
17:04we make things complex, we make things complicated, and we are hesitant to commit ourselves for
17:10the long term, long term works, partnerships work, trust works, yesterday, I'm just wrapping
17:16up, yesterday we spoke about the private, so if the consumption is going to increase
17:21and thanks to the new budgetary guidelines, there is extra money available on your pocket,
17:26please allocate them towards your growth bucket, which will definitely guarantee, give
17:32you a second income, so thank you very much, and happy retirement.