“One should aim at roughly 25 to 30 times the annual expenses by the time one retires,” Kundra said.
He also stressed the importance of starting early and staying disciplined, saying investors with 25-30 years before retirement should maintain a high allocation to equities to build long-term wealth.
How much should you save by 30, 40 and 50?
Kundra suggested some broad milestones for investors: savings equivalent to around one year’s income by age 30, three times annual income by 40 and five to six times annual income by 50.
For younger investors with decades left before retirement, he believes inflation is a bigger long-term threat than short-term market volatility.
“The real risk is not volatility… your risk is actually being too cautious in your asset allocation and letting inflation eat into your returns quietly,” he said.
Kundra said Indian equities have historically delivered annual returns of around 12-13% over long periods despite periodic market corrections. The National Pension System (NPS) currently allows investors to allocate up to 75% to equities, while newer investment options under the multiple scheme framework can allow equity allocations of up to 100%.
He also described inflation as an “invisible” drag on retirement savings, arguing that equities remain one of the few asset classes capable of generating returns above inflation over long periods.
“Inflation is the tax that nobody legislates and everybody pays,” he said.
Shift towards safer assets near retirement
The investment strategy, however, needs to change as retirement approaches. Kundra said the focus should gradually move from maximising wealth to protecting the corpus and ensuring it can support withdrawals.
A sharp market correction in the early years of retirement can permanently damage the sustainability of retirement income, a risk known as sequence risk.
To guard against this, investors should gradually increase their allocation to debt and liquid assets during the final five to 10 years before retirement, he said.
Kundra also recommends keeping two to three years of planned withdrawals in safe and liquid investments. This can allow retirees to meet their expenses without being forced to sell equity investments when markets are falling.
DSP Pension Fund focuses on businesses with durable competitive advantages, high returns on capital and low debt, which Kundra said can support long-term compounding.
For the full interview, watch the accompanying video
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