When you meet 100 people a week to talk about retirement, you do meet a lot of realistic people, pessimisstic people and optimists. You also meet wishful thinkers…and actually get worried.

A typical wishful thinker aged 50 thinks he will die at 72, his equity returns will be 19%p.a., he will die before his wife, and there will be no serious old age expenses.

What does this mean for him:

1. Asset allocation does not matter, he can be in equities till he dies.
2. His corpus will remain more or less intact for his wife to consume.
3. He will continue to live in his current house.
4. He may buy a new car when he is about 65 and that will last him till the end
5. Dementia, Alzheimers, etc. is for old people.
6. He need not make a will now.

No harm in doing some wishful thinking, but if things go wrong he will be finished. Just one assumption going wrong -say he lives to the age of 95, it means he will need a new house, nursing help, a more conservative allocation to debt, household help for many things like banking, cooking, etc.,…..etc. etc.

There is nothing wrong in being optimistic or doing some wishful thinking, but in many a times the implications are DANGEROUS. When pay offs are large people forget that mistakes can be fatal. So if a potential retiree has seen the 2002-8 boom, he is hoping that it will come again. Now if he were just a student and did not ACTUALLY experience that boom, he is less optimistic about such a thing happening in his/ her life. Women are less optimistic about equity returns than men.

People who have seen their grandparents live to their 90s and have their 80+ parents convince themselves that since they are not leading such healthy or disciplined lives they will die when they touch 72. One person to blame for all this is the non understanding of the word average. “the average age at which Indians die is 68, so I will die before 70 years”. Amazing how in a country with such much diversity, we think we will die at the average age. My grandfather died at 80 and my dad at 89. I have seen family members cross age of 90, and some are alive at 95. There is no way, no way, no way of guessing how long one will live.

Now come to their portfolio allocation. Yes, to invest itself you need to be an optimist, but being foolish is different. In the past few decades in India inflation used to be very high. The inflation impacting a middle class simple family was about 8% as documented by one person – from 1968 to 2019. I am happy to use that figure for myself, because that is my spending pattern too. I remember my father telling me (about 20 years ago)…”every year some unplanned expenditure worth Rs. 30,000 crops up – this is my observation over the past 4 years”. Which means projecting your expenses is also very difficult.

Being optimistic is fine, but the implication of getting 12% return instead of 18%p.a return makes the investor invest less. It is difficult to explain to people that putting more money and having less expectations is a far more CERTAIN way of reaching a goal, and surely less strenuous.

So be an optimist, sure. However when it comes to retirement even if you are a DIY go and get it ratified by an adviser whom you trust. Just asking a bunch of amateurs can be good for the soul, but you could end up broke at the age of 82 and then not know what to do.

Let me clarify, I am not looking for business, but maybe I am looking to fill up seats at my investor conferences!!