Often investors focus on goals like buying a car or funding children education at the cost of providing adequately for their own retirement.
Clearly, retirement is not an overriding priority for them. In this article, we list down the most common myths about retirement. Dispelling these myths will help you deal with this topic more effectively with clients.
‘Health insurance is enough to meet medical expenses’
Many people believe that health insurance is sufficient for all healthcare expenses post-retirement. However, this is not entirely true as mediclaim is limited to hospitalisation. On the other hand, if they have not bought any health insurance until retirement, it is unlikely any insurer will offer them one. Even if they get one, the premium will be prohibitively high.
“MFDs should educate their clients that they need adequate cover before retirement. Many insurers are reluctant to issue fresh policy to retired individuals or individuals with major pre-existing conditions. Also, MFDs should recommend their clients to keep aside some corpus for medical exigencies which are not covered under health insurance,” said Mumbai MFD Sadashiv Phene.
‘I am too young to plan retirement’
Planning for retirement may be the last thing in the minds of millennials. This is understandable as they are in the early stages of their career and have other priorities. We all know the benefit of starting early. The earlier your clients start saving for their retirement the better for their future.
“Millennials are spendthrift and it is difficult to convince them to give a thought for retirement. However, once you let them know about the corpus they would need after retirement to maintain lifestyle, they realise its importance,” said Agra MFD Shifali Satsangee of Funds Vedaa.
‘I will spend less after I retire’
While some may cut down on their expenditure post retirement, others may actually end up spending more in the initial years after they retire. This is true because during working years, your clients have less time for leisure and other activities. When people have more time at their disposal, they tend to engage in new hobbies, travel more or invest in a luxury to fulfil their dreams/aspirations.
‘Provident fund will secure retirement expenses’
This is a common myth that your clients have. They may have pension, gratuity and other savings but that may not suffice. As a measure of caution, Prathiba Girish of Finwise Personal Finance Solution advises people to save for retirement even if they have pension and other savings.
“Indians do not take retirement seriously. They believe their pension will take care of their expenses but they forget to factor the impact of inflation. This is where SIP in equity oriented mutual funds or retirement funds works well,” said Prathiba.
‘Average life expectancy is just 65-70 years’
With advancement in medical science the average life expectancy of individuals is rising. “Longevity is increasing as medical science has developed immensely. I will not be surprised, if the average lifespan of an individual goes up to 100 years in the future. In fact, I ask my clients to assume a life span of at least 80 years when planning for retirement,” said Sadashiv.
‘My family will help me during my retirement phase’
Many people believe that their children will take care of them when they retire. While children do have a responsibility to look after their parents emotionally and financially, it is advisable not to be overly dependent on their family members, especially during retirement.
I need to invest in safe or guaranteed investments during retirement
While it is advisable to keep a portion of your client’s savings in safe instruments, one should not avoid equity altogether. The life expectancy has increased. If people can survive for 30 years post retirement, then equity is the only asset class, which can build wealth for people.
