Manish ShahBigdecisions.in
Of the many things that scare and sadden us, like Sachin’s retirement, the tapering of quantitative easing, a fractured election mandate in 2014, contracting a serious health condition is perhaps the most scary -- not only because none of us likes to fall ill but because we’ve all heard horror stories of how much it costs to get treated and of instances where incidents of medical procedures broke many a middle class Indian family’s back.
And, while there is a very real reason to worry, most people do not do too much about this. Take a look at the following table. It represents a very real (and likely) picture of medical treatment costs of prominent ailments in private Delhi NCR hospitals*:
| Name of ailment | Cancer treatment for 1 year | Heart disease procedures | Neonatal procedures | Injuries and fractures |
| Possible cost of treatment in Rs. lakhs | 2.5 + | 5+ | 2+ | 2+ |
As you grow older towards near retirement, this becomes even more worrying. Healthcare costs are an uncomfortable combination of high inflation and increasing consumption.
Put differently, as the years pass, prices of different things in our basket of consumption inflate and inflate at different rates. When viewed at an overall level, it gets tracked as the Wholesale Price Index (WPI) or the Consumer Price Index (CPI) and a few others like core inflation.
The CPI is the most relevant at an individual or family level. However, we disagree with simply using the CPI to see how much you will be spending at retirement. This is because as you grow older, your consumption basket changes. You’re more likely to have paid off your home loan, your children will be self-sufficient and several other changes will have occurred.
So, for instance, while the price of fuel may go up steadily every year, you might not use as much as you do today – no visits to the office or to school for that matter.
Healthcare costs, however are a bit of a double whammy! Not only have they been inflating at double digits over the last decade, you will also be consuming a lot more of these services as you age.
In order to help people plan their retirement’s better, we studied an Indian middle class household’s expense pattern over 20 years carefully excluding ‘one time / special’ expenses to build the Big decisions Inflation index which is how an individual’s expenses and consumption mix is likely to impact their overall inflation.
Based, on these numbers, we estimate that, across categories, for a family of 4 where the oldest member of the house (the male, chief wage earner) is 35 years old, the family can expect their expenses to grow at inflation rates until he reaches his retirement age of 60, as shown in the table below:
| Expense head | Rent / EMI | Utilities | Food / Household items | Healthcare | Transport | Leisure | Overall |
| Inflation rate | 6% | 8% | 15% | -3% | 3% | 3.7% |
Notice, how much more the rate is for Healthcare than for any other expense head. In fact, not being covered adequately by health insurance can be a cardinal error. While you might have a fair amount of control on many expense heads, you might not with healthcare costs. Even if you moved to a somewhat smaller city to lower your expenses, this might not change much. For example, treatment costs in Pune, while lower than those in Mumbai are not substantially so***
Imagine a Rs 5,000 average monthly expense today becoming over Rs 80,000 after you’re 60. Now imagine, how much lower your overall expense will then be if you’re covered adequately by Health insurance. While, the best solution is to be healthy and not fall ill, that it’s not entirely in your hands, is it ?
So, starting to save early as most experts advice, staying healthy and having adequate health insurance are the best things you can do to plan your retirement.
*Source: Paramount Healthcare Management (PHM). Likely costs represent 95th percentile costs i.e. 5% of bills processed by PHM were above these costs. Bigdecisions believes that assuming these costs might be realistic
** Assuming that you will live in a self-owned home at this stage and hence will pay no EMI or rent
*** Source: Paramount Healthcare Management
The author is a co-founder & CEO at Bigdecisions.in (the platform that helps take smart personal finance decisions)
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