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A comfortable old age

If you thought that getting to a good-sized retirement corpus by the time you turned 60 was tough, then it's better to face the bad news now


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A lot of retirees feel that they could have made better choices and no doubt they could have. However, as the old saying goes, 'The best time to have planted a tree was 10 years ago. The second best time is today.' The basic investment and retirement landscape in India has changed so much in the last 10-20 years that many retirees have been caught out by old savings decisions that, in hindsight, have not turned out to be optimal. Even so, many things are fixable and can be optimised.

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However, those who are still in the saving (accumulation) stage of their lives must ensure that they fix any problematic issues now. If you thought that getting to a good-sized retirement corpus by the time you turned 60 was tough, then it's better to face the bad news now. After retirement, in order to earn a life-long and sustainable income from your kitty, you will have to ignore everything that you have ever been told about your post-retirement finances. The standard view in our country has been that after retirement, all (or almost all) of your savings must be in 'safe' fixed-income investments.

At Value Research, we have always argued that this standard view of retirement finances is wrong. In fact, not only is it wrong, it is positively dangerous and if it's followed, it almost always dooms senior citizens to old-age poverty. 'Retirement' is an event that takes place on one appointed day, but retired life is something that lasts for a long time. Confusing the two could lead to your senior years being seriously uncomfortable financially.

This is a sort of a paradox but the only way to be 'safe' after retirement is to invest in equity or equity-heavy hybrid funds. Here's why. During the decades of retired life, inflation destroys the value of your savings relentlessly. Many, many people find that as the years pass, their savings are just not enough. Eventually, at some point, they realise that they are running out of money. Nothing is worse than a long period of old age where an old couple gradually loses prosperity and then eventually enters poverty. And yet, all around us, all of us can see many senior citizens to whom this is happening.

It's not my goal to frighten you, but if fear is what it takes, then sure, let it be fear. None of this is theoretical. We all know people who are in this situation. I have neighbours who retired 20 years ago and thought they had plenty of money to last a lifetime. After a lifetime of earning in thousands, having retirement savings denominated in lakhs must have seemed like a big deal. However, against the relentless march of inflation, the lakhs start draining away faster and faster. They used to buy milk at about Rs 15 for a litre; now it's Rs 50. That's what has already happened. However, we never manage to project this forward because it seems a little unbelievable. And yet it will happen, as surely as night follows day. There is no doubt that during your lifetime, you will have to pay Rs 100 or Rs 150 for a litre of milk. If you get a fever, a basic medicine like Crocin will cost maybe Rs 20 a tablet. Petrol will be Rs 200 a litre and electricity will be Rs 25 a unit. All this is inevitable.

Even so, none of this needs to be the disaster it looks like. Inflation is an enemy, but investment returns can be your friends that will help you fight it. There are definitely investment strategies that will enable you to accumulate enough for retirement and earn enough from it so that you can happily make such expenditures long after retirement and still leave plenty left to bequeath to your descendants.

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