When septuagenarian BC Joshi, a retired government employee, decided to invest a large chunk of his retirement kitty in unit-linked insurance policies (ULIPs) in 2011, he had hoped that the market-linked instruments would boost his corpus.
However, he realised a few years later that he had been mis-sold these policies. By then, he had invested close to Rs 20 lakh in ULIPs. “One of them was a ‘Highest-NAV-guarantee’ product. I was told that my final corpus would be tied to the NAV (net asset value) recorded at stock market peaks. However, that was not the case,” he says.
Life insurance premiums are linked to age — the older you are, the higher will be the cost of life cover, a point that Joshi’s agent did not reveal. Since a retiree is unlikely to have any dependents, a life cover is simply not needed at that age. Add to it, the hefty commissions paid out to agents to sell such policies.
In case of investment-cum-insurance policies like ULIPs and endowment plans, these two components eat into the amount to be invested, severely denting your maturity corpus, which is what happened to Joshi. He has surrendered several ULIPs now. “I have now invested Rs 3-4 lakh in mutual funds, which are doing well,” he says.
Invest in simple-to-understand products during your retirement years
Accumulating savings and investing to create an adequate retirement fund is one part of retirement planning. However, it is equally important to safeguard this corpus to ensure that your lifestyle is not shackled by financial constraints.
Invest in products that you understand — do not sign up without gaining complete understanding of the instruments. “It is best not to trust strangers, even if they happen to be financial intermediaries associated with reputed companies,” says Joshi. In fact, there is no dearth of cases where senior citizens were sold unsuitable insurance policies even by friends and acquaintances. Put simply, do not skip reading product brochures only because they seem too complex. Sign the forms only after going through the fine print.
This, of course, does not mean that you should park your money only in savings account or low-yielding fixed deposits. “At any age, you should not invest in schemes yielding poor annual returns that are not even capable of beating inflation. Many make the mistake of not taking inflation into account while planning for their financial goals,” says Pankaj Mathpal, Founder, Optima Money Managers.
Liquidity is of paramount importance in your silver years — it is key to retaining your financial freedom in this phase. Locking away your corpus in illiquid instruments or in life insurance policies that entail recurring premium payments can compromise your lifestyle.
Avoid unregulated investments
While those belonging to the older generations tend to be cautious when it comes to monthly budgets and rarely lead an extravagant lifestyle, some gullible individuals do end up investing in unregulated products such as chit funds. Retired private sector employee Jivaji Parab, 76, made this mistake.
He has led a financially disciplined life throughout — buying life insurance, investing in blue-chip stocks and keeping his spouse involved in all financial decisions. “However, I have one regret — I invested Rs 1.25 lakh in a chit fund,” he says. This monetary loss still rankles, years after it was made.
“Many make the mistake of investing in unregulated or Ponzi schemes and lose their lifetime’s savings at times. Likewise, trading in equity or derivatives or crypto without sound product knowledge can also lead to losses,” says Mathpal.
Start early, curb expenses to reap benefits over the long term
The experiences of Joshi and Parab hold lessons for those in the younger age groups.
Joshi’s Ulip investments during his retirement phase might have caused a lot of heartburn, but a property that he purchased in Lucknow for Rs 1 lakh in 1980 ensured a house of his dreams in Ghaziabad post his retirement in 2000. “I sold that property and purchased the house in which I reside today, without having to take a loan or use my retirement corpus,” he says.
“Several individuals start taking retirement planning seriously only in their 40s. Many retirees end up with inadequate retirement corpus. Ideally, planning should start in the 20s — and, in fact as soon as they receive their first salary. Youngsters must keep track of their expenses and keep a tight lid on their discretionary spends,” says Nisreen Mamaji, Founder, Moneyworks, a financial planning firm. Start investing in equity mutual funds through systematic investment plans (SIP), even if the sums are small.
Keeping his expenses under control during his younger years is what held Parab in good stead. “I never spent money on unnecessary things and never had to take loans,” he says, elaborating on his path towards achieving financial independence. His savings and investments helped him fund his children’s education expenses over the years. Also, the value of his minuscule investment in a blue-chip stock in 2000 has grown manifold, boosting his financial security.
“When you invest, link them to future financial goals that you have set. And when you invest, never use borrowed capital — it should be done out of your surplus,” says Mathpal.