Secret Road To Financial Dignity

Dignity is something most retirees want once their active work life comes to an end and it is closely tied to the individual’s financial well-being

Ask people to state in a single word the one thing they should all have after retirement, and you can bet your right arm that their answer would be ‘dignity’. In case you came up with the answer ‘health’, you may rest assured that the previous clear-cut answer already embraces the concept of good health. So, yes, a dignified life is what all people actually want after retirement when their regular income-generation activities come to a halt. But, as it so frequently happens, debilitating issues often come up in all shapes and sizes, each gnawing a bit off that ultimate goal.

If dignity is indeed the average individual’s top priority, nothing can demonstrate it more than financial dignity. The latter depends on an array of factors, namely: savings, investments, risk appetite, asset allocation, time horizon, and so on. But to keep it short and simple, financial dignity will be a factor of one’s surplus and the manner it is put to use. Surplus, if used unwisely would run out soon, especially if it generates low returns. This has been proved true across timelines.

A new financial year is just the right time to view this from several angles, both from the perspective of savings and investment. I will take up a bit of both though, and seek to balance it all out with a few practical to-dos. So here’s a word for the discerning reader for the financial year 2024-25.

Perspective of a Saver

Those who have focused on saving well during their working life will understand this. They probably created a smart savings regimen by starting early and expanding its ambit as time passed. An early beginner fresh out of college and in his first job can carve out a part of his salary every month. A regular monthly stash is what he has in mind, and rightly so. The routine needs to be strengthened as job changes take place. By the time the individual concerned reaches a certain age, he can become a creature of habit. A true-blue saver, like so many ordinary Indians who have buttonholed a part of their monthly earnings, without interruptions or suspensions (unless done in a planned manner).

What does the average saver want? A check list will include the following: accessibility, transparency and convenience. In other words, it should be fairly easy for him to access his savings, and the process should be completely known and traceable. All these should be available to him online, so there remains little scope for actual physical movement.

In this day and age, one saves money in multiple ways—by staying on the course, by exploring alternatives, and by not over-spending. For many, however, saving more comes at a cost—deferment of gratification. Adherents of this theory are against the concept of instant indulgence. Consumption, if any, may happen later for these quarters.

Perspective of an Investor

At the other end of the spectrum lies the investor (the saver’s close cousin), who takes his own risk assessment seriously. He identifies his asset classes, and changes their mix, as he goes along. The functional idea for him is to have the perfect blend of equity, debt, commodities and real estate. These are the commonest classes of assets, each with its unique risk-return matrix. As no inflation-proof allocation is possible, so one of his toughest challenges will stem from rising prices. Returns, of course, will depend on a number of varied factors. The everyday investor will look for superior performance over the long term.

So, what does the ordinary investor seek? His requirements will include liquidity, cost-efficiency and governance. Investments should not, therefore, be locked in, and the time taken to liquidate the investments should be minimised. The process of investing should be cost-effective too, and regulatory policies with regard to expenses should be understood. Another critical determinant here is governance, which can cover the whole nine yards, including that of administration and management of assets. The spotlight, however, remains forever on the very act of generating returns. “How well are my assets being managed?” This question is paramount across different market cycles.

Many contemporary investment practices have truly emerged in the last few decades or so. Today there are new investment products, while fresh variants of old products have been introduced. New regulations have also been devised to uphold the interests of ordinary investors.

Market, Ruler And Servant

This brings us to the ultimate issue, the market. The latter, as anyone who has gone through the cycles will concur, can play one of the two roles. Either it can support your case and propel your wealth creation plans, or it can go the other way and wreck them. The latter happens if you fail to appreciate risks. This can be avoided if you hire a professional for neccessary guidance.

It is up to the investor to let the market act either as a ruler or as a servant. I say this deliberately, perhaps with a touch of philosophy thrown in. If you want the market to serve, you need to do a few basic things right. Act in a disciplined manner, invest systematically, diversify and pare costs. These are absolutely fundamental matters, and any student of personal finance can give you a list of the things that need to be done.

This also means that the market can act as a despot, violently destroying your wealth if you are not careful enough. There have been countless such cases in the past, and the future will surely be no different.

The question of dignified retirement can also be revisited in this context. Financially speaking, the retiree who is looking forward to dignity should pay heed to the four points listed here:

• Understand investment risks
• Recast allocation if necessary
• Get rid of debts
• Pare overbearing costs

Now, no advisory on retirement can end abruptly. So I will bring up a related issue: health. A dignified life, as I mentioned at the very beginning, assumes good health.

So, what can an investor, retired or not, do about it? They can clearly acquire medical insurance. That can be easily prescribed. I will only
add the preliminary caveat: familiarise yourself with your medical cover. A health plan can have important features (such as sub-limits and other capping), which must be clearly understood. Do that and you will take one more firm step towards the dignity that you are seeking.

By Nilanjan Dey, Director, Wishlist Capital