August 25, 2020

Retirement solutions – Can you actually think long term as an advisor?

Prathiba Girish
Founder at Finwise Personal Finance Solutions

Financial planning for retired clients is quite different from that for someone who is still in the accumulation phase.  As an advisor it comes with a complete set of new dilemmas. Many of the products we know which are intrinsically suitable and good for the customer come with zero revenue for us.   Why then should we go ahead and help these clients invest in products which are suitable and as per their risk appetites?

The first few clients who came on board with us were retired and we had to learn many things through trial and error.  My objective with this piece is not to bore you with in-depth details of schemes available for senior citizens.  There are plenty of details available online for you to check them out.  The intention is to give you a few learnings which can help you along the way.

The clients I started with had sufficiently large corpuses. Many of them were forced to deal with money decisions for the first time (since they had recently lost their spouse) and had absolutely no exposure to equity.   Their intention was to live on the interest income (since their corpus was entirely in debt) and leave the capital behind as estate for their children. Capital protection was the name of the game for them. The challenge was that they were introduced to us by their children for professional advice. The children expected the wealth to grow and were comfortable with volatility. They understood that they needed patience and were willing to stay invested for the long term. The problem was they were never around for the review.  The first question most of the senior citizen clients wanted to know was“ Is my capital intact?”

With these initial experiences, we learnt to recognise that the client in question is the senior citizen and not their children. We have clear communication with their children that expecting these people to do a 360 degree turn after years of FD conditioning is not the solution since it will be short lived.

Our approach is to offer the following to the client:  

  • Allow her/him to retain FDs worth 7.5 to 8.5L with a reputed bank, since interest up to 50K is exempt from tax for senior citizens under section 80TTA.
  • Invest 15 L in Senior Citizen Saving Scheme, in cases where the spouse is a senior citizen as well, invest 15L per person in SCSS
  • Invest 15L per person in Vaya Vandana Yojana
  • Encourage them to continue their PPF contributions and use the PPF as an estate in the absence of need for money during the later years.

Things to keep in mind for these investments are:

  • For all of the above, except the FDs, liquidity is substantially compromised in quest of guaranteed returns. While SCSS & PPF lock in the money for 5 year, Vaya Vandana Yojana will lock in the money for 10 years.  Taking this decision is only possible if the client has enough liquidity other than this to sustain them over the next 5 years.
  • The corpus available in hand must be sufficiently large and enough to take care of the entire retirement and hence not requiring them to take any risks to meet future requirements.
  • The interests on all the schemes above are taxable except the PPF contribution.

Once this is put in place the client is happy to stay with guaranteed income and get capital protection as was the dictate in the first place.  Once they see that they have some regular income, plus enough liquid provisions to provide for their needs over the next 5 years and some more for medical emergencies they are willing to look at other options for wealth building. It goes without saying that expectations need to be set very clearly.  We tend to spend disproportionate amount of time in ensuring understanding and rechecking.  Once we are confident that they have understood that investing in equity is going to be volatile and will require patience and time to see the results, we progress…  They are now amenable to earmark a percentage of the total corpus available towards wealth building.

What has worked for us is, we agree to give the investment a minimum five years. This is any way the time which has been given to all of the above schemes before you judge the wisdom of having ventured into untested waters. Once their expectations are set and goals are assigned (preferably wealth transfer) the senior citizen adapts surprisingly fast to the new way of investing. You will see her/him initiating discussion on shifting higher amounts to wealth building process during good times.  Be forewarned though that no amount of preparation is going to make the first down-turn easy. Your proactive communication and hand holding is the essence to making this a lifelong relationship.

Lastly to answer my question, does it make sense to cater to this segment at all where most of the advice results in zero revenue as it takes a lot of time and effort to bring them to a level which makes financial sense to us?  I would think so. It is primarily because they have large corpus to start out with. When they see value in your advice and are comfortable with the level of risk, they are likely to stay with you for a long time.   When they experience the effect of compounding, they gradually come around to look at wealth building more favourably.  Lastly, retirement is a very long innings. Given the rise in life expectancy and early retirement, this can be a very fruitful long-term engagement. The time invested initially in building comfort with the right products and understanding will pay handsome returns in the future. l am reminded of the quote that says, “It takes many years to become an overnight success”.  After all, no one claimed that it was and easy and instantly gratifying to deal with senior citizen clients.

11 Thoughts to “Retirement solutions – Can you actually think long term as an advisor?”

  1. Manohar Vishwanath Bhagwat says:

    Post retirement all tools suggested are worth.

  2. Mohsin Bijepuri says:

    Very well written based on practical experience. One question though: Is setting a timeline of 5 years for equity a satisfactory expectation? Isn’t it too less?

    • Prathiba Girish says:

      Thank you Mohsin. I agree with you one should have longer time frame for equity investing. However in this article, I was referring to base minimum time frame required before the customer evaluates whether diversifying into equity was a good decision in the first place

  3. Rakesh Kumar says:

    Just to share my experience. I also had few clients having similar profile . And I gave them similar kind of solution.. And they were surprised to see that I am advising products, where I don’t get any revenue. Since then they treat me as a true unbiased Planner.

  4. Srinivas Rao G says:

    Iam Interested in Those Concepts

  5. Prathiba Girish says:

    Thank you Manohar, glad you found it worthwhile

  6. Prathiba Girish says:

    Thank you for you interest, Srinivas . It is very motivating to write when the readers are interested in the topic and concepts 🙂

  7. Milind Ghirnikar says:

    A comprehensive plan roadmap for
    Senior Citizens bound to work to build trust and fruitful relationship.


    Absolutely correct guidance. In some of the cases where clients tax payments are higher one can consider NPS where you have further deduction of 50000.This will add to his wealth creation.

  9. Sharad Gupta says:

    Hi Pratibha. Thanks so much for sharing these insights. I attended your session too this Wednesday. Very useful. Just wanted to check if you have any such thoughts on using SWP from equity funds for retirement planning for retirees who are more comfortable with equity and are aware of the risk of inflation as they chase guaranteed returns! TIA. Sharad Gupta, MFD Gurgaon

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