One of the toughest, nastiest, and most difficult choice in life is being able to decide on how much to save (and invest) for the future and how much to spend now.

How much money you have at retirement is a function of 3 important things in life:

How much you earn (don’t fool yourself, you have to earn real well)

How much you are able to save (and then invest)

How smart is your asset allocation (equity scores like nothing else)

How well you managed the costs and taxation.

Of course how well your financial life is depends on how long you live, and how much you spend – but we will leave those things to God, because we can keep guessing all our lives with inadequate results.

How much a family saves is a function of how each spouse thinks about money, their upbringing, peer and social pressure, children’s education (and marriage) budgets, need to support parents (or did they inherit from them), etc. It is a complicated answer, but we will make some assumptions.

Look at a man who started life in 1985 and retires in 2020 – he would have started on a salary of Rs. 370,000 and ended his life on a salary of Rs. 600,000 (assumption). Assuming that he saved 15% of his income he would have saved only Rs. 7,00,000.

How much this could have become in a debt product (ppf, nsc, lic endowment plan – typical Indian Middle class choice) he would have grown it to say Rs. 70L

A mix of smart investing in say debt and equity would have taken it to Rs. 2 crores and a

100% in equity would have taken it to say Rs. 4 crores.

There is absolutely no doubt about what he should have done (in hindsight in this time frame an years gone by). However, given Indian equity penetration in the 1980s and given that this man was not so highly paid he could not have made such a choice. Also no investor indexes his portfolio from day one anyway, so that is of course a wrong assumption, but some assumption had to be made.

Now at retirement, assuming he has monthly expenses of Rs. 30,000, he needs about Rs. 1.2 crores for retirement.

Obviously the full debt portfolio has left him with nothing – AND WE ARE TALKING OF A MAN WHO SAVED 15% OF HIS INCOME. Such people are far more difficult to find.

With a mix portfolio – and assuming a well managed portfolio, he stands a chance that if he dies at 90, he may not have exhausted his portfolio.

The full equity portfolio has one advantage – it gives him some room for error – even if he had lost some money there is a decent chance that he would have about Rs. 3 crores for his retirement. That is the best that he can do for retirement.

I go back to my theory – earn well (of course), save well (can be learnt) and INVEST WELL (correct asset allocation and long time period) – this is the ONLY WAY to create wealth in the long run.

Sadly during our journey we make mistakes like endowment plans, Ulip, tree schemes, ponzi schemes, giving loans to friends, buying too much of a house, spending too much on children’s education,….etc. and wonder how to retire. Well that is in most cases. If you are not, great.