The word Average is the MOST dangerous word in planning. Even in Retirement planning you have no great use of the word average.

What is the average return one can expect in Equities?

What is the average time taken for travelling (by road) from Surat to Amdavad?

Well the returns that you get on your return could be very different from the average return in equities. Suppose you are told that the average time taken by road from Surat to Amdavad is 6 hours, will you leave your house at 6 am for a 12 O’Clock meeting? No. You will want to build some cushion, right?

Similarly if you needed Rs. 200 for a journey will you set out of the house with just Rs. 200 in your pocket?

The average age up to which an Indian would live was, hold your breath, only 28 years in 1947. So if you had told a man born in 1922 that he could live till the age of 100 years, would he have believed it? Makes no sense, right?

So for example today the average age is 62 years and if I tell you you could live till you are 180…will it make sense?

Similarly what is the average that you should take? the average age in Mumbai is 52 for males, the avg age in India is 62 and the average age in our house (paternal side is about 85), so what is the average age till which I will live? In my maternal side the average is around 80 years for men. So what is the average age till which I am likely to live? 80? 90? 100?

Dilip Kumar born in 1922 celebrated his 96th birthday a few days back. My father born in 1929 lived till the age of 89 and my aunt born in 1926 lived till her age of 90. Are these outliers or are they the new normal?

What If I start from Surat at 6am and reach at 6pm? There is only a limit to how much you can trust the word average – especially if you do not know the standard deviation. So one of the biggest impediments to retirement planning is estimating how long we will live. We will have to project on the higher side and CANNOT RISK projecting on the lower side.

I could die today, or at the age of 101. As long as I plan for a real long innings, I am safer. This is what we call a safety net. So I have the amount of money to retire – 40x my expenses at the age of 60 – in fact I might be having more than double that amount. That is the safety net.

When you are given the word average, do not just blindly accept it. Ask for the Mean (ok arithmetic mean aka average), mode, median, sample size, standard deviation and make sure that you understand all that.

And then still build a buffer – what if….a question that you should ask with ALL THE assumptions that you make in your life.