Biases That Hold Back Senior Citizens

Generation shift has always been a problem for the younger as well as older individuals, but in today’s age, the gap is becoming wider with each passing year, thanks to technological advancements that are changing lifestyles drastically. As a result, members of the current senior generation, face a unique set of challenges in every sphere of life.

While most boomers (born between 1946 and 1964) are already retired now, the Gen X (born between 1964 and 1980) has started entering the retirement zone. It is the boomers and older members of Gen X who feel the hardest punch.

In the financial sphere, there are several things that stump them. For instance, they are getting to know a plethora of investment options, half of which got popular only when they were in their late 40s or early 50s. Banks moved from physical to digital, but along came cyber frauds. Medical inflation has become a monster they were never prepared to tackle, as private hospitals were few and far between.

The good part is that many seniors, especially those in their early or mid-60s, have managed to figure out several of these things and have found their comfort spaces. Then there are those who discovered stock markets in its early days in India and have grown along with it.

The problem is that there are many others, who are not well-versed with the changes, and have been bitten hard by frauds or mis-selling and are not ready to open up to changes that may actually benefit them. Still others have simply not kept pace with the changing times.

A lot of these seniors are led by certain societal and financial biases that make them a victim of their own thoughts and beliefs. Let’s explore the common biases that seniors, typically, suffer from in India, and how they can affect their money lives.

Risk Aversion

Due To Age: The senior cohort is, typically, seen as risk averse. While several researchers differ on the direct link between age and risk-aversion, the general consensus is that older investors are less risk-tolerant. The explanation for this behaviour is attributed to declining cognitive abilities, such as declining memory, slow information processing, reduced mental agility, and so on. These factors discourage older adults from leaving their comfort zone and taking risks.

A research paper titled Why Are Older Investors Less Willing To Take Financial Risks?, published in 2018 in the International Review of Financial Analysis (IRFA) journal, reviewed multiple studies to reveal a “statistically significant pattern” that older investors prefer taking less risk.

In the financial context, it says, “Financial products are becoming increasingly sophisticated. Although they are more structured, it is cognitively demanding for retail investors to analyse them and make a decision. Investment and taxation frameworks are in a constant state of flux making it more challenging for older adults.”

Due To Negative Experiences: Some of the more outgoing ones have for sure dabbled with equities. While some were bitten by the volatility bug themselves, others have taken experiences of others to heart.

Sanjoy Chatterjee, 57, a manager in a private company in Kolkata, invested in stocks of a renowned company’s initial public offering (IPO) nearly 15 years ago, but made losses. “Then I decided not to invest in the stock market again,” he says.

Negative experiences abound in the stock market for those who stay for the short term and, typically, seniors are wary of staying invested for too long depending on their age and circumstances.

For many others, risk-aversion could be linked to the limited accumulated savings at retirement or a modest post-retirement income. So, they prefer not to take risks with equities. Many seniors are also seen to be less tolerant about newer investment tools and instruments.

Pre-Lib Guarantee Dream

With equities, for most seniors, it is a case of “once bitten, twice shy”. Even otherwise they prefer products that give guaranteed returns.

Says Saurav Ghosh, co-founder, Jiraaf, a bond investment platform: “Seniors gravitate towards fixed-income instruments for their safety, predictability, and steady income. For many, retirement is about peace of mind, and fixed-income products offer the calm and stability that support this phase of life.”

After his foray into equities, Sanjoy finds bank fixed deposits (FDs) to be the most reliable. He keeps more than 80 per cent of his investments in FDs, and the rest in systematic investment plans (SIPs) of mutual funds.

He is aware that the pension, which his employer, a private company, deducts under the Employees’ Pension Scheme (EPS), will offer only a modest annuity that will not be enough to sustain him and his wife, when he retires three years from now.

The government encourages secure investment after retirement through schemes, such as the Senior Citizens’ Savings Scheme (SCSS), which currently offer an interest rate of 8.20 per cent per annum. Banks typically offer an additional 0.50 per cent and 0.75 per cent on their deposit rates for senior citizens and super seniors (80 years and above), respectively.

A lot many also gravitate towards the security aspect. Says Manish Goel, founder and managing director, Equentis Wealth Advisory Services, a Securities and Exchange Board of India (Sebi)-registered investment advisory firm: “Many elders tend to worry more about online scams and fraud, pushing them towards traditional methods, such as FDs and brick-and-mortar banks. For them, visiting a bank, dealing with people in person, having a face to the name provides a sense of belonging and gives them a sense of control.”

Blind Belief In Real Estate

Rental income is another perennial favourite among seniors who consider it an easy mode to generate cash flow in retirement. For many, constructing another storey or reconstructing the entire house is a traditional and tried-and-tested avenue for investing money and getting passive income for a lifetime.

Ghanshyam G. Sonkusare, 78, from Bhandara, near Nagpur had told Outlook Money in an earlier interview that rental income had become the backbone for his cash flows. Even after working for 30 years, his pension was modest, and he needed to supplement the income. He did that by taking up a job in a private company for another 12 years and adding a floor to his house to get rental income, which is adequate for him and his wife now. For other investments, he trusts post office schemes, and bank FDs.

Sanjoy, too, wants to reconstruct his ancestral house to add a floor and get dependable income through rent.

Relocation Rigidity

Seniors, typically, hesitate to move to a new place or a new environment. In many cases, even after their partner passes away, they prefer living alone in the same house. There are emotional reasons like living amid a lifetime of memories, keeping up with friendships cultivated over a lifetime, and sometimes even the fear of starting a new chapter of life in a new city or place.

Usha Vallabh, 78, from Gurgaon didn’t want to shift her base and the comfort of her known locality after her husband passed away in 2016 even though she lived alone as her daughter lived abroad. She decided to stay put even though it was difficult for her to manage the big independent house on her own.

The Need to Fight Biases

Equity Returns Vs Guaranteed Income: The problem with FDs and other guaranteed government instruments is that the rates they offer are often not enough to beat inflation that erodes the purchasing power over time. Also, the retirement corpus needs to last longer, given the increasing life expectancy in India.

As market investments entail risks, it’s important to manage by having a clear strategy, and limiting one’s exposure at higher age with the help of an advisor. Goel shares the example of investment guru Warren Buffett, who generated the bulk of his net worth after the age of 65, largely through equities.

He says, “Wealth accumulation is not bound by age. A balanced approach is recommended. One commonly used guideline is the ‘100 minus age’ rule to determine equity exposure. For instance, a 65-year-old could consider having 35 per cent of their portfolio in equities. Another approach is to allocate 5-7 years’ worth of expenses into fixed-income instruments, and invest the rest in growth assets.”

Rental Income: It may sound dependable, but there are risks.

Says Ravi Saraogi, CFA, a Sebi- registered investment advisor (Sebi-RIA) and co-founder of Samasthiti Advisors: “Rental income can offer steady cash flow, but it comes with risks like high upfront cost, tenant issues, low yields, and illiquidity. In many cities, rental yields are just 2-3 per cent, which may not justify the effort or the capital locked in.”

Goel adds, “The inability to liquidate part of the property during financial need is a significant drawback.” He also highlights other issues, such as market-dependent rental demand and tenant management. Read our story from the last issue here for a detailed analysis (bit.ly/46nQzU1)

As such, seniors need to think beyond the brick-and-mortal model. Says Saraogi: “Rental income is less effective today. Rental yields have dropped, while real estate investment trusts (Reits) or balanced mutual funds can offer similar income with greater liquidity and diversification.”

Relocation: As situations changed, Usha too realised the difficulty of her situation. It was only after years of living alone that she decided to downsize and go to a different city.

Usha had a trustworthy tenant occupying one part of the house, but wasn’t sure if he would live there forever and was not open to the idea of getting a new tenant. That would leave her alone in the house. Plus, eventually, her ageing friends also started experiencing health issues. “I started feeling left out,” she says.

It was around this time that she heard about a senior citizens’ society or retirement home near Gurgaon. She and her daughter visited the society and they both liked it. Finally, in 2022, Usha sold her large independent house in Noida and purchased a flat in that society. Sharing her experience of living in the retirement homes, she says, “I feel good after coming here.” She likes living with people her age and does not miss her home in Noida anymore.

Usha could afford a decent retirement home, but not everyone can afford that. There are cases where people have a roof over their heads but not enough money to take care of themselves. In these situations, depending on children and relatives for money often robs one of self-respect. A better option could be to sell the house, buy a smaller and more affordable one, in a different area or city, and keep the balance amount for steady cash flow by judiciously investing it.

Says Goel: “Post-retirement relocation is increasingly viewed through the lens of affordability, lifestyle, and emotional well-being. Whether it involves shifting to smaller towns, retirement communities, or family homes, the decision must reflect individual priorities, such as financial viability, access to healthcare, and quality of life, says Goel.

Saraogi adds, “It (relocation) is an option to consider for those where financial assets are inadequate. Downsizing or relocating to a lower-cost city or into a community for seniors, can free up financial resources to a large extent.”

The archetypal risk-averse mindset among seniors is often due to a deep-rooted fear of uncertainty and trying new things. But their actions can often be self-sabotaging.

Saraogi says, “These decisions are often driven by habit or emotion, not strategy. Retirees need to reframe retirement as a financial journey, not a fixed destination.”

So, instead of clinging to restrictive financial assumptions, seniors should seek professional advice for a better outcome, if they can’t fight their biases or manage them on their own.

versha@outlookindia.com