Retired? How do you manage?

Moneylife had published this in 2016. Post retirement, there are issues in managing money. Some of my observations

Mistakes Retirees Make

R Balakrishnan 03 May 2016

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While Americans are notorious for poor long-term savings, I am sure that the plight of senior citizens living exclusively on their own savings is not too good either. Retirement just happens. Retirement means the loss of your earning and perhaps trying to live on your savings and, often, a reduced lifestyle with the prospect of unplanned medical emergencies looming ahead. But, in that country, the State provides a lot of social security in sunset years.

In India, things are worse as the State takes no such responsibility—not even for those who have paid their taxes throughout their working lives. I also think that there is a lot of foolishness and naiveté on the part of the just-retired or about-to-retire folks, when it comes to matters of money. Senior citizens are either very naïve or very aggressive as investors and savers. I have seen highly educated senior citizens take risks with their life’s savings, without understanding the risk. Often, they also do not understand the financial products suitable for them. 

I have come across so many cases where retirees have lost small fortunes. Fixed deposits (FDs) with unknown companies because a relative or a friend recommended it are among the most common cause of such self-afflicted pecuniary. For example, Subhiksha group company, Viswapriya, or PACL or so many ‘schemes’ where they think they will get higher returns than on bank FDs or on safe FDs with a rock-solid Sundaram Finance (once a hot-favourite with savers in south India. The company would reach its legal limits and come out with ads saying they cannot accept more deposits!). After interacting with so many of them, I think the primary reasons are:

1. ‘Secrecy’ in Matters of Money. They do not want to tell anyone, or talk to anyone, about how much they have, where they have parked it, etc. Secrecy is an obsession with them. I know of several senior citizens who have lost big money in various schemes. They all know me well and know about me. However, they have never mentioned it to me or wanted to discuss personal investments with me. This penchant for secrecy makes them easy prey for the hustlers of financial products.
2. Reluctance To Understand Financial Products. In many cases, innumeracy blinds them totally to everything. They do not even bother to find out anything about the company or the outfit before they write out their cheque. For example, I asked someone who had invested in Viswapriya whether he knew who its promoter or owner was. He did not. Then, I asked him whether he knew about Subhiksha. He did. I asked him who was its owner and he knew the name, the background, etc. When I told him that Viswapriya’s owner/promoter was the same, he was flabbergasted. I told him to pull out the form for FD that he had filled up and showed him the names of the directors. Obviously, he had not bothered to read all that. He was more concerned with the higher rate of interest that was available.
3. Attempts To Avoid TDS. This leads many people to put in amounts below the TDS (tax deducted at source) threshold (around Rs50,000) in too many companies. In this attempt, they run out of good companies and are easy meat for brokers and agents who peddle FDs of companies like JP Associates, Helios & Matheson, etc. Many I know have 15 to 20 companies’ FDs! The vicarious pleasure of cheating on the taxman has caused losses to so many. And, now, they worry more because someone, somewhere got an I-T (income-tax) notice about interest receipts. They do not realise that in this information age technology digs out information from the deepest trenches. They are still cocooned in their mindset of  having a second bank account hidden away from the taxman.
4. Operate in Single Names. Another common mistake I see is that many senior citizens still operate their investments in single names. A joint account-holder is an absolute must, irrespective of age, more so if you are closer to God than the rest. And they do not seem to have even a nomination in place.
5. Fear of Equities. A common feature I note amongst a lot of senior citizens is fear of equities. They do not want to consider even equity mutual funds. Even when they know that they are in good health, have just crossed the age of 60 and have many years to look forward to, they are blinkered. Only fixed-income investments appeal to them—fixed deposits, bank deposits, chit funds or ponzis recommended by friends. They have not bothered to understand equity and will not go to an adviser or a friend to try and decipher this animal called equity. So, they miss out on the one investment that could help them to protect themselves against inflation. On the other hand, I also come across some innocent (?) senior citizens who blindly trust their private bank relationship manager and have ended up with a bunch of (T)ULIPs. Once they are bitten, they become sceptical about everything and go into the security of bank FDs, with the occasional rush of blood to their head which pushes them to exotica.
6. IPO Memories. Most of them grew up in an era where the IPO (initial public offering) game was like a national lottery. They still get their urge to apply in the IPOs; but, luckily, many of them are scared by the free pricing. They still think of ‘premium’ as highway robbery. Most of them have not bothered to try and understand investment basics even after retirement when they have enough time.
7. No Advance Planning. Retirement is not planned or given any attention until it actually happens. No one seems to have given any thought to the fact that they would cease to get a regular pay cheque and that they have a lifetime of spending ahead of them. It seems to be a binary option. Either they have enough wealth or they are dependent on their children for their future daily bread. Thus, they take each day as it comes, without concern for their spouse or their children. I know, it sounds harsh; but an unplanned retirement is very cruel on your spouse. And, in today’s world, you should not be a burden on your children who are already stressed out about the future of their children.
8. Spouses Remain Dependent. In all cases, spouses are kept out of the decision-making regarding all matters relating to money. The typical homemaker spouse never bothers with where the money is, which bank, etc, and is totally dependent on someone to handle the money. Should the earning spouse, who has retired, depart this world, the homemaker spouse is all at sea and is easy prey for scamsters. So, all you retired folks out there, please take some time out everyday and FORCE your spouse to understand what the financial resources are and how to access them, should something happen to you. Unless you do this, please understand that, after you, your spouse is going to be at the mercy of someone for finance, even if you may have provided for her. Making and saving money alone does not complete your task. Informing and educating your spouse about it is equally important. 

All the observations are based on specific instances I have come across. We do not have a senior-citizen-friendly ecosystem. So, we have to create it on our own. Start from scratch, if you have to. Use the Internet. Start reading financial magazines/financial papers, just to get a drift of things. Understand inflation which is the biggest enemy of the retired. Financial knowledge can make things easier for you and make your rupee work better. And, remember, you are alone in this. You are easy target for insurance salesmen and other fraudsters. They will find you as the soft target for meeting their goals. In the process of meeting their goals, they will empty your pockets.