Most ignore it because it is too far. Yes, that’s the story of retirement-related goals. You ask anyone, the priority is today… today’s expenses, this year’s tax savings, next years vacation etc etc. Retirement … a big silence. And, we all know the result. There will be a shortfall in retirement corpus. Shortfall is one of the biggest retirement challenges retirees face.
Then all that is left during retirement is … Live within means … I mean cut on essentials like life, treatment or charity.
Many argue, what is the point in sacrificing today’s pleasure? That too for unseen future. Is there a logic?
Retirement Challenges
The shortfall in retirement does not take away your extra shopping or vacation. You loose self-sufficiency.
It forces you to be dependent. It makes you and spouse to compromise on basic things an old age person would require, like domestic help or treatments.
I have a CA friend who has occupied the ground floor of the house as his office. Parents live on the 1st floor. Both his father & mother have knee problems and cannot go up & down. But the old couple is stuck on the first floor. No walks, no socializing… nothing. Imagine the compromise.
So, we all agree we need to build a robust retirement corpus.
By ROBUST I mean, fund enough to last for meaningful post-retirement life for self & then spouse. Also if you want to leave an inheritance, you should be able to do it.
But why do we fail?
Simple reason – NO PLANNING or UNDER PLANNING.
Here are the top Retirement Challenges
You ignored Equity
Without including equity investments you have not earned what you could have. Your returns from debt are near long-term inflation and you have barely managed to beat it. Without equity, a long-term portfolio will have very fewer returns. Wonder whey NPS emerged and they are garnering for approval to out money up to 75% in equity funds.
You know LIC which is a very big player in capital markets also aggressively invest in equity. And so does your provided fund managers. When they have to give a fixed return why do they prefer equity?
Equity investing means a risk increase and with time it can be controlled or brought down. Hence equity investment before retirement and even after retirements are a must. If you cannot do it take help of a professional.
You invested too much in Equity
Especially years before retirements, if you are heavily invested in equity, it is another risk that you may lose substantially if markets do not support. Hence an asset allocation with proper downsizing equity when the age goes up is a must.
India lacks target-date-funds (funds which reduce equity exposure with time) concept. But you can find this is NPS “auto” choice in asset allocation. But you have very few automated choices.
You underestimate the age
Many investors are happy to plan until 70 or 75 years. But what will happen if you outgrow your expected age? Females are known to outlive their husbands. How do you provide for them? You need put retirement expenses for at least 3 decades. Estimating life is one of the debatable retirement challenges.
The estimation of age can be done by looking at prevailing mortality data of a country. Presently to assume male age as 80 years and female age at 85 is an expected figure. But it is always wise to plan for more.
This is the reason I advocate an active life for retirees too. You can always find some part-time work or engagement to keep busy going and mind active.
Your current expenses are too much
Majority couple are still engaged in making the ends meet. Not because they earn less but because they spend more.
You work for EMIs Home Loan 1, 2. Personal Loan, Appliance Loan, Credit Card 1, 2…
Budgeting is seriously a lost river with some families.
Their one hand is on always on “SLIPKART”… (yes these so called sale make money slip out of your hands 😉
If your current expenses are too high, future will force you to join your hands.
You plan to retire early
In a financial plan, if you are cutting on “t” (time), you may have to leave on inadequate means.
Many times you are forced to curtail your working span due to health issues or dislike. These can be very serious situations when you cease to earn and in that age, a change in career may not be a good option.
This is happening very fast now due to more workforce engaged in private jobs with no or less social security.
Illness or catching ailments like hypertension or diabetes are also reasons when people do not mind earning less or leave jobs.
Planning is the way in which you can look at this issue. Many of our financial planning clients run this “what if I retire in 2025?” queries. We keep early retirement as a goal too. We tell them to work for it as one has to compensate for the time.
You relied on wrong investments
Remember your old LIC friend who has one solution for all the ailments – A LIC policy.
Many people have stuck themselves with poor returns annuity plans, real estate projects or gold schemes and even equity trading for retirements.
These assets either give low returns or illiquid in nature. One has to choose and diversify assets carefully.
Many people do not plan retirement as they think building a home is retirement. No home is a roof which has no value if you are living under it. You need money to pay the bills for this home.
Similarly many invest in their “kids”. Kids are responsibilities and not your pensions. You are smart enough to know the difference. Becoming a lifelong banker for your kids is not a good option. BANKS ALSO FAIL SPECIALLY WHEN THEY GROW OLD.
Mishappening
You meet an accident without a proper mediclaim or breadwinner meets an unfortunate end without a term insurance. These accidents can lead to a huge shortfall in retirement.
Some accidents also happen due to negligence in investing. Many old age people have lost money in NBFC scams. I am scared with the thought that when this bull runs stops, many brokerages/share trading companies will vanish. Beware of this so-called quick money making schemes.
My aim of writing this piece is to make you aware of recent retirement challenges in financial planning. A careful road map drawn today can lead to a calm life ahead. Hope this article will save many form unwanted realities during their retirement lives.
Share your views and also send the article to your near one. Will wait for your comments.
