Balancing Acts Safe Withdrawal Rates in the Indian Context

Talk Summary
Retirement planning in India is subject to observational biases as planners and commentators rely on Bengen’s 4% safe withdrawal rate from his 1994 study in the US. India has a very different economic structure compared to the US, and this streetlight effect will likely lead to incorrect retirement plans being set up. The authors’ study is one of the first formal attempts to estimate a SWR using Indian data, arguing that a 4% SWR is too aggressive and a 3-3.5% SWR is more appropriate given the higher structural inflation, the higher volatility of equity returns and the limited retirement savings products in India. In addition, navigating the psychological aspects of retirement planning involves understanding and mitigating the impact of several vital behavioural biases. Present-biased preferences lead us to prioritise immediate gratification over future well-being, often resulting in procrastination or insufficient retirement savings. Hyperbolic discounting, where we disproportionately devalue future rewards, undermining the power of compounding necessary for a substantial retirement fund, further complicates the process. Loss aversion highlights our fear of losses, driving us towards overly conservative investments that may not keep pace with inflation, diminishing the purchasing power of our retirement savings over time. Conversely, status quo bias keeps us in our comfort zone, avoiding changes even when they could improve our financial future, potentially leading to missed opportunities for higher returns. Addressing these biases requires a strategic approach. Automating savings can help overcome the temptation to spend now rather than save for later, ensuring consistent contributions towards retirement funds. Engaging with a financial advisor can provide objective insights, helping to navigate around personal biases towards more rational financial decisions. Education on investment principles empowers individuals to make informed choices that align with their long-term retirement goals. Moreover, diversifying investments to include assets with growth potential, like equities, and assets that offer stability, like bonds or gold, can provide a balanced approach to achieving growth and security in a retirement portfolio. Regularly reviewing and adjusting the retirement plan to reflect changing circumstances, market conditions, and personal goals ensures that the strategy remains aligned with the desired retirement outcomes. Effective retirement planning transcends mere financial calculation, requiring an understanding of the financial mechanisms at play and the psychological biases that influence our decision-making. By recognising and working to counter these biases, individuals can develop a comprehensive retirement plan, making the difference between a plan that survives and one that thrives.
About the Speakers
Rajan Raju is the founder and principal of a Single-Family Office based in Singapore which invests globally across asset classes; published SSRN author with works exploring investment strategies and market analysis in the Indian context; seasoned board member, advisor, and visiting faculty; and former career banker with a rich history of strategic roles in prestigious global institutions. His research in asset pricing and factor theory, particularly in the Indian markets, reflects his unique approach to combining practical knowledge with academic exploration in investment management. His passion for the intersection of finance and technology led to the establishment of an investment analytics fintech startup, where, as a co-founder, he applies his hands-on experience in the industry and his research. He has a PGDM from IIM, Ahmedabad (1988) and a BA (Economics) from St. Xaviers' College, Mumbai University.
Ravi Saraogi is the co-founder of Samasthiti Advisors and a SEBI Registered Investment Adviser. He previously headed the fund raising and product design verticals at Northern Arc Investments (formerly known as IFMR Investments). Prior to Northern Arc, he worked at the institutional equities research desk at IIFL Capital and JP Morgan. He has also worked with HSBC in their business intelligence team. Ravi was recognized as one of the “40 under 40” outstanding professionals in the Indian Alternative Investment industry by the Indian Association of Alternative Investment Funds (IAAIF). He is a member of the Professional Learning (PL) committee at the CFA Society India. He is also a technical consultant to Dvara Research, which is an organization that undertakes policy research to promote financial inclusion in India. He has also consulted with the Social Impact Investments team at United Nations Development Programme (UNDP). He regularly contributes to business newspapers and magazines on topics relating to the economy, finance and investing. He is a Masters in Economics from Madras School of Economics and CFA charterholder from the CFA Institute, US.

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Audio quality could've been better.