“One should never get old!!” said Mr. Khanna in a disappointed voice.
The four colleagues, Mr. Khanna, Mr. Desai, Mr. Mehta and Mr. Ghosh were sitting in their office canteen having evening tea. All were about to retire in the next 3 months.
Mr. Khanna continued: “I was just speaking to our accounts department and learnt that after retirement I will be getting my PF of just Rs. 16 Lakhs. Now, when I put this in a bank FD at even 9.5%, I would get a monthly income of just Rs. 12,600 something. Now, how do I survive with such kind of low income?”
Mr. Ghosh: I have exactly similar problem. My PF is Rs. 17 Lakhs.
Mr. Mehta: But our PF amount should be close to Rs. 35 Lakhs, isn’t it ?
Mr. Khanna: Yes, but I took a loan against my PF few years back. This loan was taken to fund my daughter’s marriage. This resulted in reduced corpus for retirement.
Mr. Ghosh: So did I. I took a loan for my son’s education. Now I am left with a very small amount for retirement.
Mr. Desai: But you would have made some other investments, right?
Mr. Ghosh: I bought a few endowment policies for my retirement and for son’s education in 1989. I had taken a policy with sum assured of Rs. 2 Lakhs for my retirement and sum assured of Rs. 1 Lakh for my son’s higher education. In those days, 2 Lakhs was a big amount. However, this wasn’t sufficient for his higher education. His college fees itself was Rs. 20 Lakhs. Thus, I had to take loan against PF and against my endowment policy too.
My endowment policy will mature now and the maturity amount is almost Rs. 4.1 Lakhs (with accumulated “Bonus”). Out of this, Rs.3.8 Lakhs will be repaid towards the loan and I will get Rs. 30,000 for my retirement.
Mr. Desai: What about you, Mr. Khanna?
Mr. Khanna: My story is even worse. I took 2 endowment policies for my retirement, one policy for daughter’s marriage and one money back plan. As per my capacity, I was paying a pretty high premium for all these 4 policies. Thus, didn’t have much scope to save anything else. Similar to Mr. Ghosh’s case, my retirement policies vanished in my daughter’s marriage.
Mr. Mehta: And, what about your money back policy? Why did you take that?
Mr. Khanna: That policy paid me “some” money every fifth year which I utilised for usual expenses like house repairs etc. I think it was a big mistake too.
Mr. Mehta: In that manner, I did one thing wise. I didn’t blow too much money for my daughter’s marriage. But, I took up a loan to buy a plot for my retirement. Someone told me that real estate is the best investment for retirement and so I did that. I just lived life king size. Gave everything that my wife and kids asked for. I didn’t save anything separately for retirement, thinking that this plot will solely fund my retirement.
So what you understand here is that, there are 5 primary reasons why we run out of money by the time we reach our sixties.
- Blowing money in children’s marriage: Although it’s a great day in a father’s life, it is no excuse to blow off unreasonable amount just to “oblige” the society. We are responsible for our retirements and we need to save for it. If at all a “grand wedding ceremony” is a necessary goal, plan for it separately in growth assets.
- Not availing educational loan for children’s higher education: Once we have funded children’s school and college education, we should let them get an educational loan. They can get a loan for education and have a lifetime to repay, but we can’t get a loan for retirement. Again, if at all, we want to fund our children’s higher education, we can’t dip into retirement money. It needs to be planned separately ever since the child is born.
- Investing in traditional products: Some of us save a part of the income but “invest” it in traditional products like endowment plans, money back plans etc. These traditional products fail to give good returns. In fact, we get negative inflation-adjusted returns from them. We need to invest in growth products which will give higher returns than inflation so that we can create a sustainable corpus for retirement.
- No Diversification: Some of us put all our life savings in one real estate project thinking that it will help us survive our retirement. However, something goes wrong with that project and we are left in limbo. We need to have a diversified portfolio so that we can minimise our risks and maximise our returns.
- Not Saving for retirement: Some of us believe in living life king size. No doubt we should enjoy our life and also fulfil needs of our family. When I say needs, I am putting “wants” and “demands” aside and will fulfil them very judiciously. This is because, when you run out of money while approaching sixties, each unnecessary expensive toy given to your kid will start pinching you.
It is our utmost responsibility to save and invest at least 15% of our income solely for our retirement. Tomorrow, when our children grow up, they will have enough liabilities including household expenses, home loans, children’s education, self-retirement etc. Let’s ensure that OUR lack of planning doesn’t mess up THEIR finances.