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End of the road?

With retirement investments earning paltry returns as a result of low interest rates, the concern among the senior citizens is increasing. Saving and investing during the middle years seems the best option to chalk out a secure future, writes SUDHEENDRA PUTTY.

AFTER BEING in employment for over three decades and as the age of retirement approaches, most people would be busy planning for the latter part of their lives; doing all those things that they had always yearned to do, but could never quite find the time or occasion. Put simply, those contemplating retirement would be readying themselves for a cushy and comfortable life. All this provided they are financially secure and have no money worries. A possibility only a post retirement scheme can offer. It is important for them to know that their retirement benefits are safe and earn them a decent (which has itself become an avaricious expectation) return on their investments. But, the hard realities today are that investments - anywhere- earn paltry returns; those that are virtually next to nothing. Because, interest rates are moving south and are rapidly zooming there. The class of society that is worst hit because of this falling interest rates is that which is on the verge of retirement. The simple reality today is that there is little incentive to invest.

Investments in banks do not earn more than 7 or 8 per cent - a pittance of a return for someone who has slogged his or her life out in employment. Says Jayalakshmi, who leads a retired life with her husband, `the interest rates have fallen from around 15 per cent five years back to around 5 per cent today. The rising inflation (economics apart, sky rocketing prices) on the other hand is only squeezing you from both sides. It is a real hopeless situation and extremely difficult to cope with." Adds Shankar, a recently retired government official and anxiety writ all over his face, "post retirement, when I received the lump sum payments like gratuity and PF, I was shocked to find that an investment of five lakhs would not even earn me Rs.5000 a month. How do I spend the rest of my life with this sort of a monthly income ? The very purpose of giving such payments in lump sum so as to enable leading of a retired life is defeated." A feeling of pessimism is not misplaced. Bank deposits, which have always been a favoured investment option for the society, have ceased to be attractive, the additional one percent offered to senior citizens notwithstanding. Nor are fixed deposits with even blue chip companies that offer ridiculously low rates of interest for investments made for periods that sound like an eternity.

Financial security in the latter part of one's life is essential. More so, in a country like India where social security is virtually non-existent. People have to fend for themselves and its even worse in case of senior citizens and the related health hassles. There is an emotional angle to it too. The break up of the conservative joint family system that provided for financial security and emotional shock absorbers has contributed to the fact that more retired people have to take care of themselves and do not have the shelter of a son's house. Says Shankar, "the break up of the families has stressed the need to be financially self- sufficient. The monthly salary is gone and the pension (if received) is insufficient." Truly, a financial struggle.

Even if the investment options are found at abysmally low rates of interest, there is the question of security of the funds. Says Jagannath, an officer with the LIC of India, `it is not merely the high rate of interest that one is eyeing today. There is a huge premium on the safety of the money you put in." Anasuya, a VRS optee from a public sector bank was tempted to invest in a cooperative bank that downed the shutters barely a few months later. "It was aggressive marketing that made me think of investing there. Thank god, I didn't." Many others were not as fortunate as she was. Few could resist biting the bait of exorbitantly high rates of return and once they had parked their funds there, it was the turn of the banks to fly-by-night.

So, is it gloom all over? The justifiable cynicism notwithstanding, there appear to be a few good options for investment yet, particularly for the retired section of society. Explains Jagannath, "given all the constraints, I think the post office monthly scheme is the best bet. It is safe and offers you the highest rate of return in the given circumstances. Nothing else is more attractive and it is also secure." Then, there are also mutual funds. The Unit Trust fiasco and the consequent bail out by the Government must assuage the ruffled feelings of the investors. A modicum of discretion is required though. "Debt based mutual funds with reasonable rates of return are good," says Sandeep, a financial consultant. "Mutual funds act as an investment advisor and do all the technical work for you making you sit back and enjoy the returns." Pension plans are also fast emerging in India. Says Jagannath, "I believe that investments in the post office must be balanced by a personal pension plan that so many companies offer today. That of course calls for a bit of prudence and planning but is a worthwhile way of earning a steady return after retirement." The time-tested investment in real estate could also be good. Anasuya picked up two flats and an individual house and the rents that they are generating are several times more than what the banks would offer. K. S. Ramesh, a chartered accountant advises, "even dealing with plots could be a viable source of income. You need to ensure that the plot has a clear title and by investing a little over 2 lakhs, you can get a plot today. In a year's time, it is sure to fetch you anywhere between 15 and 30 per cent appreciation. Maybe, this requires a bit of running around, but is worth the efforts." Money lending through trusted sources is also an option that some can consider.

Adding to the woes of the retired people and the low returns is the number of VRS optees. A large section of the bank employees and government personnel came out with large disposable surpluses. Just that they were not as frenetic as the other retired people to earn the same rate of returns, primarily because they still have a few years of fire still left in them.

Liquidity of funds is what matters to them and they can afford to take a few more risks - like venturing into the capital markets. A slew of retirement plans from insurance companies has come at just the right moment for them. They have time to plan out retirement at least ten years before they hang their boots.

That leaves the 60 plus age group in a vulnerable position and it could even get worse if the tax sops that the senior citizens enjoy get withdrawn in the budget coming up later this month.

Curbing fiscal deficits or phasing out subsidies may mean much to arm chair economists but not to the retired people. "That leaves us with the only option of ploughing back the capital base that we created in our middle years," says Jayalakshmi. But, what of those that didn't create such a base?

Perhaps a feeling that a day gone by is another day close to the end of life itself.

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