Think Retirement is a joint initiative between Tata MF and Wealth Forum, where we discuss diverse aspects of one of the most critical responsibilities of a financial advisor towards his investors: retirement planning. Our endeavour in Think Retirement is to provide advisors with insights and perspectives that can help them understand retirement better and thus help clients prepare and execute effective retirement plans that enable them to live their golden years with dignity and financial security.

Team Omega : from left to right : Yogendra Singh, Krishna Gupta, Ziauddin Khan & Jay Sonchhatra

Our inaugural article within the Advisor Perspectives section is about an innovative initiative by a team of four young advisors from Bhilai. The key to successful retirement planning for an advisor is to first ensure that clients understand the need for retirement planning, say Ziauddin Khan and his partners at Omega Financial. This insight led them to create the Omega Retirement School - an initiative that educates professionals who are preparing to retire, about key demographic and social trends that are likely to impact their retired lives. It is these 4 key trends, they say, that open investors minds to the need for professional retirement planning. Read on to understand how Omega Retirement School engages with prospects - not on retirement solutions - but on the need for retirement planning.

In Bhilai, the biggest employer is Bhilai Steel Plant, which has over 30,000 employees. The company has a large section of management staff who serve their entire careers with BSP and when they retire, they get a retirement corpus of between Rs. 50 lakhs to Rs. 1 crore from BSP. A big challenge for many of them is lack of proper planning for their retirement corpuses, in a manner that can sustain them for a long retired life. There is a great tendency to park this money into "safe" bank deposits, which few of them realize does long term damage to their financial condition.

Before approaching them with our retirement solutions, we thought we must first help them understand what are the challenges that they will face and which their financial plans must overcome during their retired life. Without this appreciation, they will not be able to understand the merit of our solutions.

Omega Retirement School

We decided to set up Omega Retirement School, which is dedicated to this task. We invite BSP managers between age 55 and 60 - people who are getting ready for retirement - to Omega Retirement School on a fixed day every month. In this session, we discuss four key trends that are going to impact their retired lives.

1. Nuclear families : Increasingly, Indian joint family system is breaking down and nuclear families are becoming the norm. Many of the people who attend our Retirement School have been part of joint families and have looked after their parents. However, the next generation is less likely to support their parents in their old age, primarily due to not staying together. People who are planning for retirement need to factor in zero support from children and therefore have to take care of themselves throughout their lives.

2. Rising life expectancy : With medical advancements, average life expectancy in India has increased significantly. 15 years ago, the average life expectancy in our country was 59-62 years. Now, it is 72 years. Over the next 10-15 years, we must expect it to increase to 80. Retirement period of at least 20 years will now have to be planned for, maybe more.

3. Increasing health costs : Total amount spent by individuals on health care is increasing, in direct proportion to increasing life expectancy and usage of medical facilities that cure ailments that were previously difficult to cure.

4. Falling interest rates : 10-15 years ago, bank interest on deposits was 12% and company FDs gave 14-15%. Now, bank FDs give 9%, company FDs 10-11%. As the economy grows and matures, interest rates will keep falling. 5 years later, we could see 6-7% and the long term trend will keep falling, to align with interest rates in more developed countries. Over a 30 year period of retirement, investors will need to factor in gradually falling interest rates, which means income from interest will keep reducing.

When we take investors through these 4 key trends, they understand clearly the need for a proper retirement plan. They appreciate that blindly putting money into an FD is not a solution. They need to consider all the incremental costs due to these demographic and social changes and also need to consider a falling interest rate environment in projecting their income stream. The main objective of Omega Retirement School is to sensitize retiring professionals about the need for proper retirement planning.

Why are you allowing double taxation of your money?

Once the need for retirement planning is understood, it becomes a lot simpler to explain our solutions and how these can help them lead a comfortable and happy retired life. When discussing solutions, one aspect that we impress upon them - especially when discussing mutual funds for long term investments - is the concept of double taxation. All the pension that they get, all the savings that they have accumulated is from income that has already been taxed. Now, you go and invest it in interest bearing deposits, and that income again gets taxed. This is poor tax planning - to allow double taxation on your hard earned income. You must find solutions that earn you income without paying taxes on it - again. This is where mutual funds held for long term come in. Since retirees have money available for the long term, you can structure their cash inflows in a way that avoids tax on their income from their corpus. This factor appeals to them. The thought that they are simply allowing their hard earned income to be taxed twice is something that they often don't realize and once they do, they tend to appreciate the value of sensible tax planning.

First build awareness of the need, sales will follow

What works in Omega Retirement School is the fact that we explain the main concepts first, to help investors understand why retirement planning and tax planning are important. Our effort in segregating out the education part from the selling part is paying good dividends. Once investors understand the need, they willingly consider and take up our solutions. The key is to first get them to understand the need, because when it comes to retirement planning, probably many investors don't yet fully appreciate the need for it.

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