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.
- 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.
- 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….
- Refusing to accept the rising cost of care givers – and pretending that they do not need it.
- Refusing to accept that their children have a physical and financial cost of looking after parents.
- 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.
- 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.
- 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.
- 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.
- 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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