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Financial Literacy, Portfolio Rejig Keys To Making Your Savings Outlive You

Outliving your savings is one of the biggest risks in retirement. Here’s what you can do to make sure your savings outlive you

Versha Jain
July 7, 2023
Financial Literacy

Financial Literacy

A recent study by the TIAA Institute in the US on financial and longevity literacy shows that people lack longevity literacy and often underestimate their life span. Essentially, they are not prepared to finance their retirement for life.

Outliving savings is one of the huge risks for any retired person. Although one cannot know one’s exact life span, with an understanding of the factors that help in improving life expectancy, such as education level, type of work, pay, medical care, etc., one can better the life expectancy estimation and plan their retirement finances accordingly.

A longer life span means a higher need for savings to run through one’s retirement. The earlier one starts planning for it the better prepared one will be, according to the research study. It is thus important for everyone to understand the impact of longevity and keep this in mind while saving for one’s retirement.

How To Rejig Financial Planning After Retirement?

One cannot work after a certain age. So, for the expenses after retirement, one can only depend on savings and investments in a way that the funds can last the longest possible for which financial literacy is important.

Says Lovaii Navlakhi, managing director and CEO, of International Money Matters: “When making a plan, it’s best to be conservative. We assume a life expectancy of 100 for both males and females, and this number is up by 30 years in the past 15 years. It is only expected to rise in times to come.”

So keeping in mind factors like health, age, dependents, life span, inflation, etc., one should plan for retirement and constantly watch out if financial planning after retirement needs any tweak.

Retirement is a major milestone to reach with enough financial security, however, one needs to keep a watch over the finances even after one retires so that the funds can last for a lifetime.

Says Piyush Trivedi, president-alternate channel, Kotak Mahindra Life Insurance: “The first step is being clear about planned and unplanned expenses and expected inflationary increase on the same in future. The second is selecting investments which can provide cash flow to match these expenses and ensure that they are aligned with one’s risk preference and affordability of the individual and retirement corpus.”

Navlakhi adds that after retirement when there is no source of income, one can only make the best out of what is already there. In that case, “check what are discretionary expenses which can be cut, and see which investments can be moved from lower performing to higher potential returns.”

When the income cannot be increased suddenly or drastically, the discretionary expenses should be curtailed to save money for necessities. The expenses should be adjusted to the lower side depending on the financial condition and the individual’s preference. While talking about expenses, health expense is something which increases with age and one may not afford to be un-mindful of it.

Out of the various insurance options, a health insurance plan which covers most medical-related expenses, and can be renewed for a lifetime may be one of the options to save on unexpected expenses.

At the same time, investment instruments can be checked at regular intervals to ascertain that they remain aligned with the goal of lasting longer than you.

In investments, small savings schemes, fixed deposits, bonds, mutual funds, etc., may be used after due consideration to maintain a regular income flow after retirement. According to Trivedi, one can also use insurance solutions like pure protection, endowment, and annuity, for this. The evolving financial products like reverse mortgages too can help in this planning, he adds.

What To Keep In Mind To Stay Secure Financially Until The Last Moment?

According to Trivedi, the two key risks every individual faces from the perspective of financial planning are “living too short”, in which case one is not able to take care of the family’s growth and upbringing, and “living too long” which if not planned properly can put constraints on having a comfortable retired life.”

Navlakhi says that ideally, one should plan before retirement because after retirement, “your corpus may be fixed and hence you have to control expenses or increase returns (possibly a bit of both) to take care of a longer life span.”

He also recommends building some buffers for any surprises, if possible.

Where they think that their savings are not enough to outlast them or their loved ones in the family, they should seek professional advice to make changes in their portfolio and planning, he adds.

A sound financial and longevity literacy would mean better retirement planning and security, and an understanding of life expectancy at retirement or before along with the likelihood to live past a certain age is critical for good financial planning and well-being after retirement.

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