Living longer is the biggest risk

WE ALL ARE FACING A VERY BIG RISK OF LIVING A LONGER LIFE!

Biggest Risk in Life

When it comes to investment related risks or financial risks, we are aware of the risks like credit risk, currency risk, market risk, liquidity risk etc. But the bigger risk in today’s life which we all are facing is almost unknown to all of us. And that risk is the risk of living longer.

Average life expectancy of Indian is increased from 35 years to 67.8 years in 2014 since independence (Source: World Bank, World Development Indicators). And this number is increasing every year. Average Indian is expected to live longer and the life span is still expected to increase due to advancement in clinical research and medical field. The first thought which could occur in anyone’s mind after reading this number is, GREAT, IT'S A REASON TO CHEER! But the fact, which at first glance looks like a reason to cheer, is in fact a reason for a BIG WORRY. A longer life, if not coupled with financial independence is of no meaning.

Classic example is Japan. In Japan today the life expectancy is little more than 82 years. Look at the growth rate of economy. It’s almost NIL. As the life expectancy increases the number of more financially dependent people increases. The same could be the case with India in after 2 decades.

Three Phases of our life

In our life span we pass through 3 phases.

1.    Learning Phase

2.    Earning Phase

3.    Reaping Phase

In First phase i.e. learning phase which lasts for on an average 2 to 2.5 decades, one spends most of the time in getting education and acquiring the skills which he can use in future to earn money. In Earning Phase which lasts for approx 3 decades where one spends most of the time in earning money using the skill obtained during learning phase. And while earning one also tries and saves for the third phase i.e reaping phase which is also known as retirement. In this phase one is financially dependent on either one's own savings which is accumulated during second phase or their children.

Assume the situation in which you are solely dependent on your retirement kitty and your retirement account gets exhausted in 7 to 8 years after you attain the retirement and you still have a decade more to live.

Dependency is curse

More and more number of people are getting added to old age homes and living their life on the support and pity of others. It’s not because, they didn't saved during their earning life, they surely would have. But it's because of lack of knowledge towards channelizing the savings into the right investments.

These people when they were young they never have thought that monthly grocery bill which was Rs. 1000 to 2000 per month at that time will rose to Rs. 20,000 to Rs. 25,000 per month when they retire. They never visualized that the medical expenses will increase many folds during the old age. They could never imagined that the cooking gas cylinder which was costing less than Rs. 100 at that time would cost them more than Rs. 650 at the time of retirement.

They kept on saving but never planned or never calculated the exact amount of money they would require for their retirement. This might happen to you as well. Have you ever planned your investment thinking that the petrol which is costing Rs. 75 today would be Rs. 500 per litre and the monthly expense to survive could increased to 1.5 Lacs rupees per month during your retirement.