Retirement Fund Choices

Two people retire on the same day with the same corpus. One runs out of money. The other is fine. Same average return. What went wrong? Meet Rahul and Rohit. Both are 47. Both spent 17 years saving diligently. Both retire with 2 crore rupees. Both invest in equity mutual funds that deliver an average of 9% per year over the next 25 years. Both withdraw money every year to fund the same lifestyle. By 72, Rahul has a healthy corpus still growing. Rohit ran out of money at 64. Same discipline. Same corpus. Same average return. Completely different lives. The only difference was the order in which their returns arrived. Rahul got lucky. His first five years in retirement saw strong markets. His corpus grew even as he was withdrawing from it. By the time bad years hit, his base was large enough to absorb the damage. Rohit was not lucky. His first five years saw two sharp market downturns. Every month he withdrew money to pay for groceries, rent, and his parents' medical bills, he was selling units at low prices. His corpus never recovered that lost ground. When the good years finally came, there was not enough left to benefit from them. This is called Sequence of Returns Risk. It is one of the most underappreciated risks in FIRE planning. Two retirees can earn exactly the same average return over 25 years and end up with dramatically different outcomes. What matters is not just how much return you earn, but when those returns arrive. The consequences can be particularly severe in India because many retirees do not have a guaranteed pension or social security income floor, and Indian FIRE investors often have fewer alternative retirement income sources. During a market downturn, withdrawals still need to happen. Every rupee withdrawn after a sharp fall is a rupee that no longer participates in the recovery. The fix is not to avoid equity. It is to build a buffer. Two to three years of living expenses in liquid, low-risk instruments such as high-quality debt funds, short-term fixed deposits, or cash equivalents. When markets fall in your early retirement years, you draw from the buffer instead of selling equity at a loss. You give your corpus time to recover. Most people spend years calculating their FIRE number. Far fewer spend time calculating how they will survive their first bear market. Both plans matter. I write about #artificialintelligence | #technology | #startups | #mentoring | #leadership | #financialindependence   PS: All views are personal

Glad to share the Publication of a Book Chapter co-authored with Pankaj Saggi for a Book titled Pension Security in India: Progress and Prospects, edited by Deepak Mohanty for Provident Fund Development Regulatory Authority PFRDA and the Academic Foundation. The chapter titled Leveraging Corporate NPS as a Strategy for Expanding NPS in India, studies barriers in coverage and adequacy of NPS, particularly among private sector workers. The paper intends to highlight the pivotal role of “Corporate-NPS (C-NPS)” in achieving sustainable long-term pension inclusion. Given that most of the workforce is employed in the private sector, C-NPS is essential for long-term pension inclusivity. This research paper investigates the challenges and potential solutions for expanding C-NPS coverage, emphasising the role of PFRDA in addressing these challenges. The paper adopts a mixed-methods approach, combining quantitative and qualitative research methodologies, using subscriber data spanning ten years from 2014 to 2024, sourced from PFRDA.https://https://lnkd.in/dpKDGf34 #PFRDA #Pension #Socialsecurity #Research #NPS

When the World Bank recently suggested that Malaysia should raise the EPF withdrawal age from 55 to 65, many reacted, fearing the loss of access to their own savings. World Bank's logic is probably: when life expectancy stretches to 75, a withdrawal age fixed at 55 leaves 20 to live without steady income. Still, what works on paper does not always survive contact with economic reality. Malaysia’s labour market is far from homogeneous. A growing share of workers earn their income outside formal employment. They drive, deliver, code, sell, or create content across platforms, moving between gigs with irregular earnings and no employer contribution. For these own-account workers, EPF participation is voluntary, intermittent, and small. Telling a Grab driver or a YouTuber to wait until 65 to touch their savings misses the point entirely. The World Bank’s proposal also glosses over behavioural truths that every pension designer learns the hard way. People value liquidity far more than long-term compounding, especially in uncertain economies. They withdraw early not because they are irrational but because they face immediate obligations. If the rules become too rigid, contributors disengage, preferring to keep money outside the system. This will erodes the very savings pool the policy seeks to preserve. Another flaw lies in assuming that balances are low because Malaysians spend recklessly. The data show that half of EPF members over 50s have less than 10k ringgit in their account, not because they are imprudent. For the B40 of households, real wages have barely grown, and many have faced job interruptions. Raising the withdrawal age cannot fix this. It only defers access to an account that is already too small to sustain retirement. There is also the question of fairness across systems. Civil servants retire at 60 and draw lifelong pensions guaranteed by the state. Private-sector workers rely on their own savings, which are exposed to market risk and longevity uncertainty. If we wish to strengthen Malaysia’s retirement readiness, the path is clearer and more grounded in evidence. We should widen the base of participation through automatic micro-contributions for platform and gig workers, matched by government incentives tied to regularity rather than lump sums. We should publish transparent adequacy dashboards showing median balances by age and income group, and adjust policy only when those indicators improve. People save more when they trust they can access funds when truly needed. Raising the withdrawal age looks like a technical fix to a complex human problem. It may improve the actuarial balance of the system but it risks losing the confidence of its members. Source: https://lnkd.in/ghZ_nJCR

I recently tried opening a Voluntary Pension Scheme (VPS) account with two major banks in Pakistan, HBL and Bank Alfalah Limited. The experience was telling. At HBL, I visited twice. There was no designated staff available to guide on VPS. I was repeatedly told the relevant person would “come at 12.” There was no proactive support and no follow up. At Bank Alfalah, I met the team and specifically asked about VPS investment options. The explanation was simply, “It’s like a pension.” There was no discussion on: • Fund allocation choices • Equity versus debt exposure • Risk profiles • Management fees • Front or back end loads • Tax implications • Long term return assumptions I was told documentation would be shared. It never was.... Eventually, I opened the account digitally through an app because the traditional banking front end seemed far less interested in facilitating an individual investor than a fintech interface. This raises a larger question. If financially literate individuals who are actively trying to invest for retirement face friction and indifference, what does this mean for broader pension penetration in Pakistan? We talk about savings gaps, capital market depth, and long term domestic resource mobilization. But customer facing execution is where trust and participation are built or lost. Retail investment culture cannot grow if frontline banking engagement treats investment products as an afterthought. There is massive potential in VPS adoption in Pakistan. But it requires: • Trained advisory staff • Transparent fee communication • Proactive client education • Accountability in follow up Financial inclusion is not just about opening accounts. It is about enabling informed participation. Would love to hear if others have had similar experiences or better ones.

3 reasons why it’s hard to plan for pension in Belgium. 1/ Psychological Hurdles: - Youthful indifference to aging. - Our brains prioritize immediate concerns. 2/ Technical Complexity: - A maze of rules and regulations, specific to each worker type: civil servants, employees, freelancers. - Historical layers of social and fiscal intricacies that stack up since Belgium's creation in 1830. 3/ Practical Barriers: - Knowing where to start is daunting. - The digital age offers solutions, yet the path is unclear. Understanding these barriers highlights the necessity for accessible solutions, breaking down these walls to secure Belgians pensions. We're working on it 💪🏻

The “missing middle” is one of the most overlooked segments in retirement planning conversations and yet it is one of the most economically powerful. In countries like Uganda, a large proportion of income earners operate outside formal payroll systems. They run shops, farms, transport fleets, creative studios, consultancy practices, and cross-border trading businesses. Their incomes may fluctuate, but they are not financially incapacitated. Many of them generate steady cash flow over the years. Traditional retirement frameworks often anchored by institutions such as the National Social Security Fund were built around formal employment contracts. Contributions are deducted automatically and Compliance is employer-driven. Predictability is assumed but the missing middle does not live in predictable income cycles. They live in seasons, market days and cash flow waves. Designing contributory pension schemes for them requires a philosophical shift from “fixed deductions” to “adaptive contribution models.” A functional scheme for informal workers should recognize four economic realities: First, liquidity matters. Informal earners prioritize working capital. Pension products must coexist with business reinvestment needs rather than compete against them. Second, contribution psychology is different. Small, frequent deposits through digital channels can build stronger discipline than large, infrequent lump sums. Third, trust architecture is critical. Transparency in statements, accessible withdrawal rules, and visible compounding growth are non-negotiable. Fourth, flexibility does not mean absence of structure. Guardrails must exist to protect long-term savings from short-term consumption impulses. If this segment remains unserved, retirement becomes asset depletion. Land is sold, Businesses are liquidated and Children become pension plans. The economy absorbs the strain. However, when contributory schemes are structured to accommodate income variability, something transformative happens as informal income becomes formal capital. National savings deepen, Long-term investment pools expand and Economic resilience strengthens. The missing middle does not need charity but pension engineering that understands how they earn. For policymakers, regulators, and financial institutions, the opportunity is significant to create contributory vehicles that are portable, digital, flexible, and disciplined designed for self-directed earners. Retirement inclusion is not about forcing informal workers into formal molds but redesigning financial systems around real economic behavior. The future of pension sustainability in emerging markets will not be decided only in corporate boardrooms. It will be shaped in markets, farms, workshops, and small offices where the missing middle earns daily but plans rarely.

Nearly half of disabled savers are unlikely to reach a minimum standard of living in retirement. For many disabled people, saving is a luxury, not a reality. Disabled households with at least one disabled adult or child face extra costs of £975 per month on average. This figure considers receiving welfare support, so it often leaves little to no disposable income for saving. Employment barriers and lower wages compound this financial strain, making it even harder to build financial security. Living in poverty or destitution and facing systemic barriers, the daily struggle for survival often overshadows long-term financial planning. We must address the root causes of this inequality and ensure that everyone has the opportunity to live with dignity, both now and in the future. It's time for systemic change. We need to create a society where disability is not a barrier to financial security. Everyone has a role to play: - Businesses: Create inclusive workplaces and offer supportive benefits. - Government: Increase disability benefits and expand access to financial services. - Individuals: Advocate for change and educate others about the issue. What are some specific ways to help disabled people achieve financial security in retirement? #DisabilityInclusion #RetirementPlanning #FinancialSecurity https://lnkd.in/g-w8PUdP

The 5 years before and after retirement can make or break your financial future. Here's the uncomfortable truth most advisors won't tell you: It's not just about HOW MUCH you save. It's about WHEN you face market losses. Let me explain: Two retirees with identical savings can have completely different outcomes based on: • WHEN they retire • WHAT the market does in those first few years This is called Sequence of Returns Risk. And it's the hidden retirement killer. Here's why it matters: 1. Market drops early in retirement are devastating        You're withdrawing while your portfolio is down    (The equivalent of bleeding in shark-infested waters) 2. Recovery is harder when taking withdrawals        Portfolio has to work twice as hard to bounce back    (Like climbing up while walking down an escalator) 3. The impact is permanent        Even if markets recover, the damage is done    (You can't un-spend what you've withdrawn) Real example: A $1M portfolio drops 20% in year 1 of retirement? It could run out 10 years earlier than planned. The solution? Create a buffer zone: • Protected money for immediate needs • Growth potential for later years • Clear strategy for both This is why I help my clients build their Bucket Strategy BEFORE they need it. Hoping for good market timing isn't a strategy. Having a plan is. What's your biggest concern about market timing and retirement?

What is really surprising about this article is that it is a surprise at all. As far back as 2010 I wrote a paper about the dangers of using historical 'expected' returns to calibrate pension funds Assets/Liabilities balance. The article "Stocks for the Long Run: Historical Facts and Statistical Fallacies" is shared in the comments. This has been an accident waiting to happen for a long time. There has been a common, and yet trivial, mistake in the mathematical modelling of portfolio construction. This error, which is explained in detail in the article, has led pension professionals to somehow think that 'expected returns' are the most likely return for an asset in the long run. This is simply not true. In fact, the chance of achieving at-or-above the 'expected returns' is 50% regardless of the time horizon, which means that there is at least a 50% chance of achieving lower returns, again REGARDLESS of the time horizon. And the shortfall between the accumulated value of an underperforming portfolio relative to the 'expected returns' portfolio grows with time. Not only that, but historical data provide ample evidence that assets returns are STRONGLY CYCLICAL. I.e. periods of over/under performance can last for many years. Investing in the markets for retirement still makes a lot of sense, but just not with the commonly used approach to 'expect' some specific returns from the portfolio. While this change is possible to implement for individual investors, it represents a big problem for pension funds. Pension funds (specifically Defined Benefits funds) have two choices in order to cover their liabilities: 1) To contribute new capital, in very large amounts 2) To rely on the capital markets to alleviate the need for new capital Today, pension funds still rely too much on the capital markets to do most of the heavy lifting, relying on projections based on 'expected returns'. This is, at best, a 50% lottery, if not worse. Unfortunately, introducing more achievable capital markets returns expectations is not a real choice for most pension funds, because the resulting funding shortfall is too large to fill. As for individual retirement plans, the simple solution is to a) consider higher levels of savings, and b) avoid making retirement plans based on some expected accumulation. https://lnkd.in/d5HCQtBV

We keep seeing retirement research framed around confidence scores and happiness indices, as though the central problem in retirement is how people feel rather than whether the math actually works. That framing misses the point. If someone approaching retirement has materially less super, expects to live longer, and is worried about running out of money, that is not irrational anxiety. It is a rational response to a real financial constraint. The deeper issue is methodological. Some of these studies bundle together very different pillars such as money, health, purpose, relationships, and activity into a single aggregate score. But those dimensions are not interchangeable. Strong social connection does not offset inadequate savings, and a healthy balance sheet does not cancel out poor health or cognitive decline. That matters because these headline scores can create the illusion of precision without giving us a clear explanation of how the components are weighted, normalised, or combined. If the methodology is not transparent, the score is more useful for marketing than for serious advice design . The bigger technical failure sits underneath all of this. Much of retirement advice is still built on expected return optimisation and straight-line assumptions about inflation, returns, and spending. But markets move through regimes, correlations change, and retiree spending is not linear over time. So instead of surveying people about their anxiety after the fact, maybe we should fix the modelling first. That means less reliance on static optimisation and more focus on regime-aware portfolio design, stochastic modelling, and cashflow frameworks that reflect how people actually live through retirement. Until then, we will keep measuring fear that our own advice architecture helped create.