For many of us, the word ‘retirement' brings a certain sense of relief. The last thing one would like during this time is unpleasant and unexpected ‘surprises’. However, retirement planning is getting harder and harder. And at the root of this problem is not recognizing the challenges in retirement planning and taking timely action to address them.
Here are some of the major challenges that can be a set back to your client’s post-retirement life.
# Longevity
World Bank data shows the average life expectancy rate in India has increased from 62.5 years in 2000 to 69.5 years in 2018. And thanks to advances in medical science, the number is expected to rise further in the coming years.
# Rising medical expenses
A 2019 report by Towers Watson shows that India has the highest rate of medical inflation in the world. Another report by Mercer Marsh in 2018 has stated that health costs in India are set to be double the inflation rate. Today, the cost of a medical procedure goes into lakhs. And health care costs can be particularly onerous.
The combination of increasing life expectancy and medical costs mean investors need to accumulate wealth more aggressively so that they do not outlive their savings.
# Late start and indiscipline
Many investors fail to realize the importance of investing at an early stage in their career. By the time they realize the importance of retirement planning, they have inadequate time to meet their retirement goals.
“Many investors realize the importance of retirement when they are in their 40s or 50s. And even after that they do not take prudent financial decisions. They keep redeeming their investments for other short-term financial needs. In such cases, advisors must help their clients in becoming more disciplined,” says Mumbai-based MFD Sadashiv Arvind Phene.
It is better late than never. So, if your clients start late, you can ask them to be realistic with what they want to achieve, understand their limits, clear all their debts and put an end to unnecessary expenses, suggests Phene.
# Prudent planning
Many investors are mistaken that insurance products or fixed deposits can be enough to ride through their post-retirement life. Some of the investors also feel that their investment in real-estate will fetch them adequate rent.
“Rent on property may not be a reliable source of income post retirement as residential properties offer around 3% annual return while commercial properties can get you 6% annual return. Moreover, this requires maintenance and in some cases active involvement which clients cannot afford in old age,” said Suresh Sadagopan of Ladder7 Financial Advisories.
# Equity - Retirement ke saath bhi, retirement ke baad bhi
Many people liquidate their equity holdings after retirement. Many top advisors feel this may not be a sensible idea. No matter how well investors save during the accumulation phase, it is critical to plan how they can convert those assets to income. And investment in equity, can be crucial in this plan. Parking the entire amount in fixed income products may lead to subdued returns and consequently investors can outlive their assets.
“It is important to keep some part of your assets in equity even after retirement. If you retire at 60, you can invest a certain amount in equities that you plan to use after the age of 70 or 75. This means your equity assets have 10 to 15 years to grow which can be enough to ride out volatility. This is important because many clients who live till the age of 80 or 85 end up living as many years in retirement as they did during their working life,” says MFD Srikanth Matrubai.
