by Nilanjan Dey
IBNS: In an era marked by increased life expectancy, no risk is more potentially debilitating for the average investor than Longevity Risk. Indians, who are now living longer, face the terrible prospect of outliving their resources, especially their retirement savings.
The scenario seems bleak for policy mavens – they must ensure comprehensive old-age social security for all, a goal that is far from being achieved in our country
Longevity risk, a subject that has already spawned countless debates in investment circles, has compounded several critical problems. With 70 now being the mean age for the statistically inclined, democratic dividends are getting slimmer. As our aging patterns change, older individuals are losing financial independence faster than before, adding to the burden on our working sections.
While the government’s social commitments are on the rise, a major share of the responsibility now lies firmly with the private sector. The latter has to address the risk in the best way it can – through financial products that are aimed at retirement savings. A large part of our populace must depend on these products for meeting their superannuation needs.
All told, longevity risk is currently playing havoc with retirement ambitions of the average individual. Advances in medical science, coupled with a greater awareness of health insurance, actually weighs heavily on the retirement market.
Ways to tackle it
The ordinary citizen may explore various strategies to tackle the situation. Efficient planning, marked by the choice of appropriate investment products, is the most obvious strategem. The latter has to be rolled out early, not later in life when superannuation has drawn near. An early start and methodical investments in retirement assets are the two most significant tasks for the average individual.
Here are five solutions that I would like the reader to consider in this context:
- Begin as early as possible and keep at it for as long as it is necessary.
- Plan first. Acquire investment products in keeping with your plan. Make sure they fit well.
- Assess your needs in line with your time horizon. This will reveal your appetite for risks. In other words, you will realise how tolerant you are when it comes to risk-taking.
- When you have attained the desired results, consider de-risking your holdings. You may also resort to profit booking.
- With profits will come taxes. The latter, added to investment-related expenses, not to mention inflation, will hurt your portfolio. Try to mitigate their impact to the best extent possible.
Three key questions
I have, in view of the strategies I have just outlined, worked out three specific questions for the reader. Before I end this column, here is my list.
● How often do you save specifically for retirement?
● How much of your current earnings is directed towards retirement assets?
● Which are your preferred investment destinations?
The answers to these critical questions will reveal a lot – the extent of preparedness, to begin with. A smart investor, despite the longevity risk he is likely to face, does everything in his power to stay prepared for the final eventuality – retirement. And that, in a manner of speaking, spells good news for contemporary India. I rest my case.
(Nilanjan Dey is Director, Wishlist Capital and author of No Room For Less. He can be reached on email@example.com)