Published Article Details

Lessons learnt: How not to spend, invest in retirement

Posted by: Uma Shashikant on Jun 29, 2020, 6:30  AM IST

This week’s story is about a couple who retired 10 years ago and are today in serious financial trouble. They were not reckless with their money. For most part. They made decisions that seemed quite normal but backfired to create a financial mess.

The couple led a comfortable middle-class life working for public sector banks —the husband as an officer who got transferred to many locations and the wife as a clerk in another bank, refusing promotions to stay closer home. They worked for 30 plus years and decided to take VRS at the age of 55. They opted for the lump sum payout that seemed very generous and looked forward to a peaceful retirement.

They had two children, married and living independently in Australia and Bengaluru. The couple themselves lived in their 3-bedroom flat in a western Mumbai suburb, their home turf since the mid-1970s. Their retirement plans included some travel, rest and recreation. They were not big spenders though they enjoyed a few indulgences with gadgets, household goods, jewellery, clothes and travel from time to time.

One of the first things they did on retirement was to upgrade their Mumbai home. They decided that the house should be as modern as the newer ones, even if it meant spending some money. They would enjoy the PoP ceilings, modern lights, air conditioning, newer wardrobes, marble flooring and granite countered modular kitchen. The budget was small to begin with.As work progressed, the cost overrun was considerable.

They then decided that they should invest some money in a property they would like to retire to, as they aged. They scouted around for retirement homes and communities. They were then lured by the promise of great living at Lavasa, then a highly popular and aggressively marketed proposition.They booked a house in one of the communities there, telling themselves that the long drive from Mumbai was not too tedious. The house would be ready by 2010 and they could move soon after.

The daughter had quit her job after her second child. She was considering setting up a boutique from home at Bengaluru. She lived in an upper middle-class locality and was confident of building a clientele with hard work. She knew of many disgruntled workers at the boutiques she shopped from. She knew from her fondness for good clothes, how an ensemble for which she was paying premium prices, could be assembled at her garage for a much lower price. She wanted to convert that idea into a business and sought her parents’ help for capital. Her children were young, she reasoned and it would be risky to stake her savings. Since her parents had no other commitments, she could use the money and repay it as her business expanded and grew. Our friends found it fair and agreed.

Our retired bank officer had developed a keen interest in the stock markets in the few years before his retirement in 2010. The boom of 2003-2007 had happened in front of his eyes. Initially a reluctant player, he soon was happily speculating with his new Internet trading account. PSU bank shares seemed like familiar territory and he made a decent amount of money betting on them. Slowly he increased his involvement and began to trade futures and options too. When the crash struck in 2008,he lost a neat packet. He hid that information from his wife, who did not know about her husband’s new affliction since she lived in Mumbai. When he spoke about the money, she did not take much interest. That meant the husband remained secretive about his dealings in stock markets.

After retirement, stock trading became an obsession. Our man spent his waking hours in front of the terminal, mostly trying to recoup losses, though he disclosed only profits to his wife. She did not receive or read any of the financial information or reports and found it all too complex to be involved. She trusted that her husband would not gamble away the retirement corpus.When they both chose commuting the retirement benefit instead of opting for a pension, it was because he convinced her that he would make a better return investing the money than the small amounts of annuity that the bank would pay them as pension. She bought into that story.

Now you know how all of this unraveled in a short span of 10 years. The husband lost most of the money betting on the banking sector that he believed he knew. The Lavasa project simply failed, mired in a series of controversies. No one lives in those ghost towns, nor is one able to sell the property. The daughter’s business failed as she was unable to manage two young children and the business, and the whims of the many tailors and craftsmen.She always had stocks that she could not sell, even at a discount, and constantly needed working capital. The parents put their hands up after a point. The son remained distant and non-committal, mostly. While willing to bear any expense arising out of medical emergencies, he refused to bail his family out of what he saw were reckless decisions.

The couple now have no income, a completely depleted corpus, save for the last Rs 1 lakh that is in the bank. They are in complete despair.

My advice was for them to sell off the Mumbai flat and move to Sawantwadi, their home-town. It is a drastic change but will give them an opportunity to start afresh. They need capital, and their Mumbai home will help release it. They can sell it and buy a house and farm with less than half that money.
The balance can be their corpus for the rest of their lives. They can sell the Lavasa property whenever possible and live off the money thus realised. No one needs to know—it can just be a decision to live in the quiet and find purpose helping their village and its people.

When I review their decisions, I am struck by how harmless and routine many of them looked. The wasted money on renovation, the mindless investment for the daughter, the locking up of money in property, were all decisions many households might be making. One could only fault the speculation, and a better informed wife could have capped the outlay. Together it unleashed complete financial destruction that is quite scary. The husband insisted that the story be told and here it is.

 

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