Seniors citizens' guide to managing money that applies to all at any age
Posted by: Uma Shashikant on May 14, 2018, 01.42 PM IST
My 80-year-old friend is an avid investor in equity and has an enviable portfolio of stocks and funds. He also actively trades in stocks and derivatives on his screen and remains committed to equity investing. Generalisations like “100 minus age is the appropriate equity allocation”, make him furious.
Here are his top lessons in personal finance for seniors, oft repeated when we meet. First, manage your money for the legacy you want to leave behind, not for yourself. According to him, investing in low-risk, interest-bearing instruments just because he is 80 years old, is a disservice to his heirs. His grandchildren who will inherit a part of his wealth are still young, and need the money growing at rates that equity can offer.
There is a small portion of one’s wealth that can be used for oneself and that portion remains small for most of retirement, given how conservative we are about spending. He thinks it would be a shame if his heirs inherited bank accounts. Instead it would be wonderful if the bluechips he has accumulated outlive him and turn out to be the fruit-bearing trees he leaves behind in his children’s gardens.
Second, never compromise on quality when it comes to money. He is not enamoured by the various offers of PSU stocks that come from time to time; nor is he keen on buying bonds to save taxes. He loathes the street corner finance companies that lure senior citizens with high interest rates. He thinks the traditional view that performance of an investment has to be judged by the regular income it provides, has hurt many senior citizen’s portfolios. They view investment as a corpus that should generate a specific income every year. This orientation misses the growth potential that a large sum of money holds. He believes seniors must use the time on hand to choose the best stocks, funds and investments for their corpus and learn the basics of making sensible choices.
Third, do not expect the government or anyone else to protect your interest; you have to do it yourself. He loves to talk about what he calls the feudalistic mindset among Indians. He says our history of being ruled by kings has led us into believing that someone in power will take care of us if we show adequate deference and loyalty.
The deterioration in the political leadership of the country over time, comes from this deference to power and money and the trading of favours, he says. This extends to our financial lives, where our interaction with institutions is primarily bound by the expectation that they will take care of us and our money. The recognition that there is no free lunch has not been ingrained in the popular psyche.
Fourth, put your head down and work on your limited universe; the bigger world will take care of itself. He dislikes discourses that worry about the broad trends in the world. It is not possible for a single person to understand or influence change at that level. What happens in the macro world is a complex culmination of various actions of numerous players, and trying to fit patterns and offer interpretations is a futile exercise in expertise. What matters is whether we have been able to do tasks well within our control, in the best possible manner.
Managing one’s credit card debt is more important that trying to understand if the government is borrowing too much. He says our religious scriptures emphasise the need to focus on one’s duties, without the expectation of benefit, because we are incapable of influencing the collective outcome of the actions of so many.
Fifth, do not manage money with desperation at the back of the mind. He brings up reverse mortgage as an example. While it is a good idea to use a large fixed asset that one owns to generate some money during retirement, reverse mortgage should be the last, not the default choice. The bank that lends the money against the house will make much more than the individual who earns a monthly income off it. Before making a choice about how to realize the value in assets, be sure you have done the math and understood clearly what you forego and what you gain. If that equation is loaded against you, do not go ahead. Seek a good deal for yourself and your money, irrespective of your age and stage of life.
Sixth, focus on your health and happiness as your primary responsibility. It is easy to develop dependence on others as one ages, but our man would like to avoid that as much as possible. He follows a strict exercise regime and makes the effort to reach out to friends and family. He does not fret about living alone, and argues that others should not be asked to compromise their careers, family time, or savings to take care of an old man. The only demand he makes is that his children and grandchildren make the effort to visit him from time to time, since he does not travel much anymore. He says worry and anxiety are killers. One should learn to be content with what one has done in life, and live graciously.
Seventh, enjoy spending on yourself without succumbing to guilt about taking care of yourself. He disapproves the overtly frugal behaviour of retirees, who are generally loathe to spend. He thinks that the eagerness to take on new experiences and to enjoy things that one cherishes, should not be given up. There are many expenses that anyway shrink with age – he bemoans the practice of gifting clothes to elders and points me to a cupboard of unused jackets and dhotis.But books, movies and food are comforts he has grown up with and would continue to spend on without worry.
Nostalgic conversations about the cost of things in the good old days are exercises in ignorance, according to him. If your money is growing at a rate that beats inflation, you are still better off and that is what you should care about. When I ask him about what he cares for the most, he says that life ultimately boils down to food, friends and conversations. If one can throw in good music and flowering and fruiting trees into the equation, even better! The best things are those that money can’t buy, indeed.