When I speak to well informed and educated investors (and advisers) the biggest retirement income worries seem to be the following:
Market volatility, Regulatory changes, Medical expenses not covered by their medical insurance, Inability to maintain a complex portfolio beyond a particular age, Inflation and poor financial understanding.
All these fears seem to be valid, and I realised that there is really nothing I can do about it:
1. Market Volatility: I could write a 500 page book on this, but it will not help anybody. If you quit your job at the start of a fantastic bull run, you are damn lucky and if you retire at the beginning of a bear market, you are damn unlucky. There is really nothing else to do. I have solved this for people by creating 3 different buckets of investing 0-3 years, 3-7 years, and >7 years. This has worked well for the past 22-23 years.
2. Regulatory changes: In a country where there are enough communists and socialists inside every right wing party, please expect and be ready for dividend tax, capital gains tax, estate duty, aggressive wealth tax – and what have you. I really shudder to think what it can do to most of the portfolios that I am advising. People will get chewed. Prayer is the only solution.
3. Medical expenses not covered by insurance cover: this could be anything – I have never professed to understand General Insurance (like Medical). The policy drafts are too cumbersome. I have a policy from New India and I hope that by the time I am making a claim my good track record will ensure that all kind of niggles and major operations are covered. Keeping good health and lots of prayer is the only solution. I am yet to find a sensible general insurance adviser. Keeping fingers crossed, praying and keeping good health habits is the only solution.
4. Inability to maintain a portfolio of stocks, fixed deposits, mutual funds, fixed maturity plans, insurance plans, annuity plans, ..is not easy. By the time you are 65 (especially if you do not have kids or they are unwilling to learn or help) you should have only one mutual fund scheme, one bank account, one medical plan, one savings bank account, one credit card. Anything more complex your mind may do a suboptimal portfolio management. Finding a trustworthy helper is likely to be a nightmare – especially in a country without any chance of controlling the thieves running around!!
5. Inflation: Many people worry about inflation dropping down, and interest rates going up. This is a very rare event, but preparing for interest rates to be around 4-6%p.a. and inflation to be around 7-8% is a realistic level of planning. This actually means you will not be able to go to a zero equity portfolio till your age of 80 seems to be a given
6. AS you go on in life you read words like ‘Core and Satellite’, ‘Term Insurance with return of premium’, ‘Systematic Investment Plan in direct equity’ – are all meant to either make you buy a sub-optimal product or worse con you off your money. This can be easily avoided by increasing your financial knowledge…and yes saying NO to every product that is offered to you. Simple.
Of course Praying helps.
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