Going by several research reports, experts suggest that longevity of life has increased and that people are expected to live beyond 85 years. Imagine living long, but being unprepared financially! How would you survive? Even so, seniors today still hold on to more reliable investment options with less risk.
Seniors need a better and clear understanding about new investment options. This will certainly make them reconsider investing their hard-earned money. Investments involve emotions. Decisions must be based on our needs, cash flows, and lifestyles. When it comes to choosing a retirement plan, the options before us are limitless. We need to make the right choice and be prepared at any age.
The right investment path
We could live for up to 30 years or more post our retirement. Interestingly, women live longer than men. Taking this scenario into consideration, we should realize that any investment returns should earn more than inflation, which is above 8 percent, to maintain our future lifestyle. It is also essential that our investments yield enough to take care of ever-increasing costs. Looking at just the medical expenses, the inflation rate in India is around 11 percent. So, a blood test that costs Rs 2,500 today will cost Rs 11,961 after 15 years and Rs 20,000 after 20 years. The cost escalations are unimaginable. It is thus imperative to invest in diversified options other than the regular fixed deposits or post office schemes to beat future inflation.
We need to understand that inflation is not just about prices rising. It is about the value of money that keeps coming down. Seniors today must invest with a budget in mind. This budget can be gauged keeping in mind your needs and requirements. One also needs to factor in the risk of today’s investment, which can only be explained with the help of a qualified professional.
Every senior individual needs to keep these basic facts in mind – having a million rupees is not a retirement plan. It is important to understand how you invest and grow that million rupees for your future. A simple categorization of your expenditures is the following:
-The Essential Bucket that fulfils your daily routine needs
-The Lifestyle Bucket catering to the fun aspects of life
-The Nest Egg Bucket catering to emergencies
Prepare for the Future
It is essential for every senior citizen to make a Will in their lifetime, irrespective of age, and have the right nomination, as times are changing and someone can contest a nomination. We need to understand that today banks will hand over the deposits to the nominee unless it is not challenged. Making a will safeguards all your assets that are hard-earned. Get an chartered accountant or a lawyer to draft your will in the right language. For women, it is imperative that they take pictures of their jewellery and mention behind the photos the weight of gold, the number of diamonds, rubies, etc.
If one does not need an income, invest in a growth option to receive cash flow. We need to understand that while investing in equity will give you long-term growth, in between, there will be volatility. Don't expect immediate returns. In equities, the returns are either front-ended, back-ended or in the middle during a period of 7-8 years. Clearly understand how a particular asset class works to set expectations on yielding returns.
Finally, it is very important to understand the difference between creating money versus creating wealth. The former involves getting fixed interest after a defined period, while the latter involves many years of compounding that will result in a very large sum. Thus, it is essential to take the services of a financial advisor / mutual fund distributor who will guide you in your investments.