Retirement Reality Check: How Senior Citizens Can Make Their Money Last A Lifetime | The Money Show

Good evening and welcome to The Money Show. I'm Kavita Thaplayal and this is your trusted destination for investor education, financial awareness and smart money decisions. In today's fast-changing world, managing money is no longer optional, it is essential. From rising expenses and changing lifestyles to market volatility and digital investing, every individual today faces one important question. How do I make my money work smarter for my future? And that is exactly what this show is here to help you understand. And today, let's begin our show with our senior citizen special edition. Retirement is often called the golden phase of life, a time to slow down, pursue passion, spend time with family and enjoy the rewards of decades of hard work. But along with peace of mind comes one very important question. How do senior citizens create a steady and reliable income after retirement? Today, we'll discuss practical and realistic ways retirees can make their saving last through retirement while maintaining financial independence and dignity. From planning regular withdrawals for monthly expenses to structuring savings for short, medium and long-term needs, we'll look at strategies that can help retirees manage money wisely in an uncertain world. We'll also explore popular income generating options available for senior citizens in India, including the senior citizen saving scheme, post office monthly income scheme, fixed deposit bonds, systematic withdrawal plans or SWPs and annuities. We'll also understand how each of these options fits different retirement goals. And because retirement planning is not just about earning returns, we'll also touch upon crucial factors such as inflation, taxation, liquidity, healthcare expenses and the challenge of ensuring that retirement savings truly last a lifetime. Whether you are already retired, approaching retirement or helping your parents plan their finances, today's discussion promises to be informative, practical and extremely relevant. To talk more on this, let's welcome our guest on the show, Shilpa Gole, who will be helping you out with all of this today. Shilpa, hi, evening and welcome to the show. And a very crucial aspect of your life and your investment journey, your retirement phase. So, people spend decades building retirement savings, Shilpa. But why do so many retirees still fear running out of money? Let's just start with this. Good evening, Kavita and thank you for having me on your show. It is a very, very common fear that retirees have, that senior citizens have, that when they hit retirement, the biggest worry is, will I outlive my money? And this fear is absolutely valid because with every generation, you'll notice, Kavita, the life expectancy is increasing. So, while, you know, our earlier generations were living till they were 65 and 70, now you're seeing people living into the 80s and 90s. And I won't be surprised if some of us even live into a triple digit number. So, it is very, very common now that our lifespans are getting extended. And with that, the biggest worry is, am I going to outlive my money? The other big worry, Kavita, is with all the geopolitical situation, all these tensions, the way global dynamics are changing every day. Another worry is inflation, the way fuel prices are going up, healthcare costs are going up. Senior citizens are genuinely worried, am I going to be able to take care of these costs and still have enough during my later years? So, I think these are the two big worries that senior citizens have, Kavita. All right. But, you know, as compared to earlier, has retirement planning become more difficult today? Are we looking at the basic understanding of retirement that has actually changed, you know, because also people are living longer? Traditional retirement planning is still or what are the changes that we are looking at? Traditionally, Kavita, a lot of people were, if you look at how things were earlier, a lot of people were living off pension benefits. And now we're in a place where the government has left it to us to accumulate money. So, it's a very contribution-based pension system that the country has moved into. And because of that, the onus is on us to be able to accumulate enough for our retirement. That's number one. So, the big worry is now that I've accumulated this money, how am I going to pay that pension for myself, you know, every month? And what kind of a regular income can I create? At the same time, preserve money for my later years and make sure that I'm beating inflation year on year, Kavita. So, I think that is one of the biggest changes that have happened in the pension landscape, in the retiree landscape over the past few years. And because of that, I think financial planning in retirement has become all the more critical. And I think one of the biggest, you know, problems that happen at this phase is that a lot of retirees become very risk-averse. And they tend to move all their money into very fixed income products, into FDs, into their senior citizen scheme. And I understand where, you know, that fear is coming from. But at the same time, inflation is real and a lot of these products don't beat inflation over the long term. So, I think this is one of the, you know, very, very, I would say, contemporary problems that we're dealing with. Right. Now, since you mentioned inflation, I think a very serious impact on your entire investment and the journey comes to inflation. So, when we talk about retirees, how serious is the impact of inflation on retirees, you know, who depend on fixed income, especially healthcare costs rising sharply? Are most senior citizens underestimating medical expenses? Is keeping money idle in savings account actually risky for retirees? Because, you know, they want their investments to be safe, but can being too conservative also become dangerous over time, especially when you're dealing with inflation after retirement? Absolutely, Kavita. I think the biggest problem now is that if you're keeping all your money in a savings account or in an account that's, you know, a very conservative risk-return profile, then what typically happens is the bigger risk that you're dealing with is inflation eating into the purchasing power of your money. And like you rightly pointed out, I think one of the biggest, the highest inflationary, you know, goods and services that we talk about is hospitalization, is medical expenses. And if you look at what recent surveys have shown, they've shown that medical expenses are going up by 14% every year, which is not a joke. And if you look at the average CPI of, you know, historically, it's been in the range of around 6 to 7%. But if you're talking about 14% inflation for hospitalization, and not just that, Kavita, we're also looking at the first 10-20 years being a period where senior citizens want to travel. They want to go visit other countries. They want to fulfill some of their unfinished dreams. And travel expenses are also not cheap. You see the dollar going up against the rupee month on month, forget year on year. And these are also certain costs that they have to grapple with. So having said that, yes, if you're going to put all your money into your savings account, and keep it in low risk, low return investments, savings rather, then it does come at a cost. There is a very, very big risk of eating into the purchasing power of your money. That's right. You know, also choosing the right income option. Now, that is a very crucial aspect. What should be the first priority for a retiree? Safety, regular income or growth? Because we cannot underestimate the fact that liquidity is a very important aspect of your entire retired life, you know, when it comes to investments and your phase of your life phase. Medical emergencies also. A lot of retirees chase higher returns. That is also what we've observed. At what point does higher return becomes higher risk? What should be the entire approach over here? Good question, Kavita. So I think when it comes to your retirement, you have to break it down again into time horizons. If you think about your liquidity that, you know, the low risk, low return bucket that has to be there as well. And the first five years of your money, let's say zero to five years, should be in low risk, low return instruments with a lot of liquidity. Then when you think about like a five to 10 year phase, you can keep that bucket in something that is medium risk or medium return. And finally, you've got like a more than 10 year bucket, which can continue to be in growth instruments like good quality, equity, it could be in gold, it could be in other instruments that are creating a little bit of growth in your portfolio. And that more than 10 year bucket is what is going to help you beat inflation over the long term and help you preserve the purchasing power of a substantial amount of your capital. At the same time, you do need liquidity, you need money, which is not linked to the markets, which is there to help you take care of your living expenses in the short term. So therefore, that zero to five year bucket, which is to take care of those needs. Along with that, I would say that in that zero to five year bucket also include an emergency fund buffer. I do understand that, you know, health insurance is very important and a lot of you are wise enough to take a sufficient health insurance cover. But remember that when you're a retiree, the copay clause goes up, the deductibles go up. So there are still a lot of out of pocket expenses that come with medical inflation and medical expenses. Therefore, it's important to have a sizable emergency fund. So I usually tell people in their senior citizen phase to look at at least having one year of expenses as just your emergency money. And apart from that, five years of money in liquid, low risk, low return investments. Where do you park this money? In which investment option? So the money that's in your zero to five year bucket, Kavita, can be in a mix of instruments. So some of it can be in something like a post office monthly income scheme. Now I understand that post office monthly income does come with a lock-in. It's a five year lock-in, but at least it starts paying you out a monthly income. That's number one. The other option that you can look at is systematic withdrawal plans. So you can look at putting a part of your money into debt funds. And I'm not talking about debt funds with a very medium to long duration, but I'm talking about short term debt funds like your liquid funds and your arbitrage funds and low duration and short duration and ultra short funds. From these, you can start creating an SWP for yourself so that there is a, and you can create a frequency of monthly in the SWP to ensure that this money is coming into your account. And this is very, very liquid. Remember that the SWP money is coming from mutual funds, which are open-ended with no lock-in period. So that would be the second investment that I would talk about. The third is you could also look at other, you know, short term investments like your senior citizen savings schemes. You can look at, which has an 8.2% interest. You can also look at RBI floating rate bonds, Kavita. These again come with an 8.05% interest. Of course, all of these products, the interest is taxable. However, I would mostly steer clear of annuities. So like a post office monthly income scheme or an annuity, anything that has a lock-in, I wouldn't keep a very substantial sum of money there. I would say some part of my monthly income can come from there, but I would keep a significant amount also in SWPs, Kavita. All right. So how is tax actually calculated in all of these investment instruments? And definitely the priority is, you know, protecting your capital, whatever you have earned so many years, parking it in a very safe, conservative investment instruments, but there has to be some earning element to it, which will be taxed. What would that be? Right. And at this point, I'd also like to mention fixed deposits. I think that's the key product and I missed mentioning that. So if you look at FDs, if you look at post office monthly income scheme, if you look at senior citizen savings scheme, all these three instruments, whatever interest you make is taxable at your slab rate. So I think there's a misconception that because some of this is a government created scheme, there will be no tax on the interest payout, but there will be. But I also understand that a lot of senior citizens won't be making as much income. So a lot of people will fall within that 12 lakh bracket of income or a little higher than that. Therefore, the tax implication may not be as high. Having said that, SWPs from liquid funds and ultra short duration funds and any short term debt funds are also taxable at slab rate. So in the SWP, there'll be some component, which is your capital, your principal, and there'll be some component, which is the capital gain. So the capital gain component will be treated as at your slab rate. Taxation is definitely not to be ignored, but then Shilpa, I also want you to help our viewers understand a bucket strategy. Okay. So now this one bucket was for your protecting your capital and maybe having a regular income that needs to be put in fixed income instruments. But then there would be a bucket where you would also put a portion where you would expect the money to grow and earn for you at that phase of life. What would that bucket be? So Kavita, I would say there are two more buckets to talk about. One is the medium term bucket. The medium term bucket is the one from which there'll always be a spillover every year into the short term bucket. So think of these as dynamic buckets. Every time your zero to five year bucket falls short by one year, you're moving money out of the medium term bucket into the short term bucket. In the medium term bucket, you're looking at more hybrid kind of instruments that are giving you a mix of debt and equity. And here you can start to look at more medium to long duration bonds. You can look at balanced advantage funds. You can look at a little bit of large cap equity. So that five to 10 year bucket is the space where the risk is medium term. So we're talking aggressive hybrid, conservative hybrid, balanced advantage. You can also bring in bonds, like I spoke about. You can also bring in certain other instruments that come with, you know, reinvestment of the interest, like your national saving certificate, like your PPF. So if you're someone who's already, you know, with the PPF, you can keep extending it by blocks of five years. That can continue to be in your medium term bucket. Then comes your long term bucket, which is more than 10 years. Here I would still invite you to be equity heavy. So think of this as one third of your capital, which is parked in predominantly equity investments. It doesn't have to be small caps. It can be a mix of, you know, predominantly large cap strategy with a little bit of mid-cap brought in. You can also look at a few flexi-cap funds to add to the mix. And I think this would be a large chunk of it. And there would be around 10% allocation to gold, 5% to silver. Look at also bringing in some international equity to hedge the risk of, you know, your currency depreciating against foreign currencies. So I would say let that continue to be a bucket that is beating inflation for you. All right. So definitely it's important that you don't park all your funds in one particular bucket or one investment instrument. I would like to go back to the SWP conversation because although it sounds very simple, thanks to social media, oversimplified, I guess. Okay. But it's very crucial to understand how can you implement it? Because it's not one strategy fits all. You know, there is also an accumulation phase that you should be keeping in mind and you cannot just, you know, one day retire and say, oh my God, I want this much money from my corpus that I've created. So that is not possible. How can you be mindful about SWP and also have realistic expectation when you want to implement it? Sure, Kavita. So Kavita, in an SWP, I would say there is the possibility of starting to create an SWP for yourself instantly. So what financial gurus typically tell you is that give it one year, let your mutual fund first make some gains and then you start drawing an SWP. And when they give that kind of an example, they significantly increase the percentage of SWP that you're doing. So here I'm not treating SWP as, you know, something that you need to wait one or two years. You can start doing one immediately as long as you're only eating into the, you're only sticking with whatever returns you're getting from your capital. So let's say you put it in a liquid fund that gives you 5% to 6% return. You can also instantly start your SWP by just drawing only within that 5% to 6%. So you set up your SWP way that you're taking out only 4% of the money or 4.5% of the money. That way you're still preserving the capital. That could be one way. The other is when we talk about a bucket strategy, the bucket strategy already assumes that you cannot. So if you look at the long term, you can't really depend only on your passive income because in, you know, your inflation is going to go up over time. So you are eventually going to start eating into this principle. So in a zero to five year strategy, we're already saying that whatever money you have in that five years, you're going to not just live off the returns, but you're also going to start drawing into the principle. You will completely consume that and keep, you know, adding more from your medium term bucket. So I think the important thing to remember in your retirement is, and I would say this to anyone who's trying to earn a passive income. Passive income is mostly a myth unless you're sitting on a very, very large corpus. Eventually there will come a time when you start eating into the corpus, the principle itself, because inflation, Kavita. So your withdrawal will increase year on year and it'll increase at least at the pace of six to 10%. All right. So, so, you know, back of our mind, if we are aware that we would be needing an SWP strategy, if we are someone without pension or without any regular source of income after retirement, how should we be mindful about it during our accumulation phase? I mean, yes, you spoke about passive income, but then there, can there be a strategy when you are also in the accumulation phase so that when SWP comes, you have enough money and you're bang on the target? So, so let me explain accumulation versus distribution. So even at the accumulation stage, Kavita, the kind of target we set ourselves is to say that if I have to live for, let's say, 30 to 40 years and I have to make a sustainable withdrawal of my essential expenses year on year in those 30 to 40 years of retirement, how do, how do I do it in a way that is also inflation adjusted? So any inflation adjusted calculation essentially assumes that by the 40th year your corpus becomes zero. So let's say you start at 60 and you, your corpus works for you till 100 years. By the, let's say the 80th year of your life or 90th year of your life, you're already starting to eat into the principle of your corpus. So, so the buffers have to be built in a very different way when it comes to your accumulation phase or rather the target setting that you do at your accumulation phase. You can build in a buffer to say that inflation will be high throughout these 30, 40 years. So then you're, you know, increasing the size of your retirement target fund. You can also assume that you will live a few extra years. You can assume that returns would be lower than what you expected. So these are all different ways in which you build a buffer to say that, okay, you know, how do I build these safety nets into my retirement corpus and not run out of money by the end of those 30, 40 years. But assuming that, you know, you will absolutely not dip into the principle, I think that's a very big, big, big challenge. Then you'll have to at least, you know, double the corpus that you're setting yourself. And that can often be unrealistic, Kavita. Do you like the senior citizen saving scheme, Swetha? I like the senior citizen saving scheme. It's offering you 8.2% interest. And I think even if you're not really, if you fall within the lower part of the tax bracket, it's a pretty comfortable and neat interest to get from a scheme. All right. So now what about those seniors who also want to explore equity market? What would the strategy be for them? We get a lot of questions from seniors, you know, who put money in direct stocks. We also know seniors who are putting money in mutual funds. How can you dabble in the equity part? So I would say the equity part, while it's very, very important to have equity in your portfolio, this is a time to be taking relatively less risk, right? Because you want this money, you know, 10 years down the line. We're looking at this as your third bucket, which is your more than 10 year bucket. So I would say that don't look at small caps and mid caps because small caps and mid caps typically have very extended snooze periods. The snooze periods can be two years and three years and even five years. And not all senior citizens are comfortable with that level of volatility. So if you're someone who can take that risk, like we said, if you've already built a large enough buffer in your retirement fund and can afford to take a little more risk with your money, then you can look at adding the flavor of mid cap and small cap through flexi-cap funds and multi-cap funds. But if you're someone who is sitting on just enough to take you through your retirement, I would say stick to relatively less risky stocks in your portfolio. Look at large cap companies, look at large cap mutual funds, look at index funds that are giving you exposure to large cap. And in addition to that, bring in some exposure of foreign equity as well, Kavita. All right, let's do a quick rapid fire, okay? One investment every retiree should understand. Okay, SWP. One financial mistake every retiree must avoid. Putting all of their money into fixed deposits. Fixed deposit, senior citizen savings scheme, SWP or annuity, which works best for steady income? FD. What does a financially secure retirement actually looks like? Well, a financially secure retirement looks like you've got your three buckets in place, one third, one third, one third, and you're off taking that dream vacation that you really wanted to do in the first five years of your retirement. All right, that's a lovely plan. With that, it's a wrap. Thank you so much, Shilpa. And as we conclude today's discussion, one thing becomes very clear. Retirement planning is no longer just about saving money. It's about creating sustainable income, preserving dignity, and maintaining independence through the later years of life. For senior citizens, the challenge is not merely earning returns, but ensuring that their savings can withstand inflation, rising healthcare costs, taxation, and increasing life expectancy. And that requires careful planning, diversification, and informed decision making. Whether it is a senior citizen savings scheme, fixed deposit, bonds, SWPs, annuities, or a balanced bucket strategy, there is no one-size-fits-all solution. The right approach depends on an individual's needs, risk appetite, lifestyle, and financial goals. Most importantly, retirement money must work not just for today, but for the decades ahead. And that's all on the money show today. Thank you so much for watching. Goodbye.