Some retirement advice was not bad to give even 20 years ago. People retired at 58 and promptly died at 65. Their PF and gratuity lasted till they did, and then it did not matter. Now chances are you will lose your job at 55, not have a pension, and live till age 90. So strategies which worked for your dad or his dad will NOT WORK for you.
Of course that is making an assumption that you will live as long as your parents do / will do/ did. Yes I know that there are 80 year olds calling themselves the ‘trapped generation’ – their parents died in their 70s, these people will live to their 90s, but their children will die in their 70s!
If you ask older people or those who are not updated on markets, you are likely to hear the following old and terrible advice:
1. Your expenses will decrease once you retire: Complete nonsense. Yes your work related expenses will decrease. You MAY spend less on formal clothing – but today informal clothing is just as expensive / cheap. You will still continue to eat in the same restaurants, travel by air, – REALLY nothing changes.
2. Stay away from equities: nonsense: If you are going to live for 30+ years in retirement, you need protection from inflation. This can be provided only by equities – and equities are surely more easy to manage than rental properties.
3. You must buy an annuity as soon as you retire: Typical sales pitch. Given the fact that Gsecs are at 8.2% yields, THIS may not be a bad time to tie into annuities. However currently in India SBI type of bonds are available at a yield of 9%. This means you can tie yourself into this asset and WAIT to buy your annuities. The later you annuitise your moneys the better the rate that you will get.
4. Joining a Board of a company is a good idea: Hey no. It is no free ride at all. Companies do not always listen to the Board. As a member of the board you should be happy if everything is even shown to you! The risk reward ratio of being on a Board is terribly against the ‘independent’ director…so best is to avoid it. Whatever it is, it is not a walk in the park for a retired person.
5. You must be debt free: this is generally true. However if you have debt locked in at age 54 for a 16 year period at 7.5% and you are getting 9% on senior citizen account, why should you repay the loan? So being debt free is NOT always right advice. Yes if you have borrowings at a higher rate and you are earning less than that in some asset class, YOU should repay the loan. However the answer to the question ‘should you have debt or no’ cannot be answered without a lot more data.
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