Retirement Mistakes I see people make

I am not sure whether many people over the age of 70 read my blog but here is an article dedicated to them.

What are the 2 risks in a Retiree portfolio?

– running out of money during your last few years

– or living too frugally and leaving back just too much for your heirs

So let me sum up the mistakes that I see – which leads to the above 2 situations.

  1. Not adjusting withdrawal to accept market realities: If the value of the portfolio comes down you need to withdraw less. Or withdraw more for yourself. People get into a trap and keep withdrawing amounts which could hurt them if they live long. I know one couple which has exhausted its capital. Their daughter has brilliantly kept them under an illusion that it is their money that is being spent because she is getting them a 13% interest on Fixed deposits. Keeps everyone happy.
  2. A fixed amount withdrawal has worked in India because interest rates have not come down now for a long time. However when interest rates start coming down this will hurt the older people whose corpus is less. Children will have to subsidize some part of their parents life. Yes, the children will have to move in with them or ask them to move in with them….
  3. Refusing to accept the rising cost of care givers – and pretending that they do not need it.
  4. Refusing to accept that their children have a physical and financial cost of looking after parents.
  5. Refusing to accept that if they are 70 now there is a serious chance that they will live to 93 – and thus have to be financially and physically prepared to live for another 20+ years. Which means if you are 55 years you need to prepare for another 35 years ahead. Alone or with spouse.
  6. When I tell them they can withdraw 7% without any worries, they do not understand that this includes INTEREST and capital together. Which means if they have say Rs. 1 crore they can withdraw Rs. 7 lakhs a year. NOT 7l + THE INTEREST that they receive!!!

7, Getting out of equity too quickly. I think having about 10% of liquid net-worth even on deathbed is not a very bad idea.

  1. Insisting on being in Fixed deposits and paying taxes even at the age of 77! : shifting to a combination of mutual funds can dramatically bring down the tax incidence – most of the senior citizens think it is a crime NOT TO PAY taxes. One senior citizen got so scared that he thought I was asking him to do something illegal. His son being a CA DID NOT HELP.
  2. Not seeking professional help: If you have indifferent and incompetent (from an investing point of view) you will need outside professional help to manage your small portfolio also. Most of them are in complete denial and make a mess of their portfolios.
  3. Not understanding that withdrawing from the capital will not hurt them if they are already 75+ and Reverse Mortgage can work well for a person of that age.

 

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2 Responses to “Retirement Mistakes I see people make”

  1. One more mistake (or possibly preemptive bribe!) is buying extravagant gifts at retirement. Father of a good friend retired just a few months ago. As a gift to his son, he bought him a macbook pro! A DSLR is on the way! [The chap is not an apple fan and is not into photography either (even amateur)].

  2. Respected Sir,
    I am an engineer having retired recently.
    Reverse mortgage conditions of various banks are very harmful.They act like olden days landlords.It is nothing but a lawful exploitation.
    For a house property valued at 1 cr they pay an annuity of Rs 10,000/- PM which is very less.This works out to 1.2L annually which is just 1.2% of property value.I think they can easily pay about 2.5 % of property value annully and still make handsome profit.This is because property prices increase at an average rate of 10 CAGR even considering short time recession.
    What I mean to say is reverse morgage conditions are totally in favour of banks and customer is a bad loser.I think government should intervene and make the scheme customer friendly.

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