When you think of retirement you think of days when you can sit back, relax and enjoy life one day at a time. However, relaxation and enjoyment come at a price. You need a source of income post retirement so that you can lead a comfortable life. Since you are no longer in active employment, you need a retirement fund for meeting your lifestyle expenses. That is why a nest egg is required.
Though you know this, you make many mistakes when planning for retirement. These mistakes prove hazardous and take away the comfortable retired life which you have dreamed for yourself. Below is the list of some common mistakes which people commit when it comes to retirement planning. Find out which ones are you committing –
#1 – Starting late
A very common and yet the most dangerous mistake is delaying your retirement plan. When you are young and in the prime of your career retirement is the last thing on your mind. Be that as it may, retirement planning should start from an early age if you wish to accumulate a substantial corpus over the years. When you start early you get the benefit of compounding and the returns are substantial over a long-term horizon. Moreover, you don’t need to save substantial amounts to create an optimal fund. If started early, little amounts would also amass to a considerable corpus because of the power of compounding. For instance, if you start retirement planning when you are 30, you can accumulate a corpus of about INR 1.90 crores even if you save INR 5000 per month and the interest rate is assumed to be a moderate 10% per annum. The same corpus reduces to INR 1.13 crores if you delay by merely 5 years and start investing at 35. So, delaying your retirement plan is a bad move.
Remedy – Be the early bird. Start early, invest affordably and build a substantial retirement corpus.
#2 – Investing primarily in fixed income investments
Many of you are risk averse and don’t want to take chances with your retirement funds. As a result, you invest in investments which provide fixed and guaranteed returns. While fixed returns are not bad, they lose their value against inflation. Since you are building a retirement corpus, you would need funds after a specified time. Over that time inflation would eat into the fixed returns and the corpus generated would prove insufficient to meet the inflated expenses post-retirement.
Remedy – Choose investment avenues which are linked to the market so that your corpus becomes inflation adjusted. If market volatility is a problem you can choose market-linked debt funds which would minimize risks while at the same time making your corpus inflation-proof.
#3 – Irregular savings
Investing in retirement is not a one-time affair or a practice which you can undertake when you want to. Only a regular and disciplined savings approach would build up a corpus sufficient enough to pay for your life post-retirement.
Remedy – Create a disciplined investing portfolio where you direct funds towards retirement on a monthly basis.
#4 – Insufficient health cover
When it comes to medical expenses everyone knows that they have become unaffordable for a common man. Medical inflation has increased so much that an average hospitalization threatens to burn a deep hole in your pockets. Moreover, as you grow old, illnesses increase requiring frequent medical attention. In such a case if you do not have sufficient health insurance cover in retirement, you might face a financial nightmare.
Remedy –Invest in a health insurance plan with a coverage optimal enough to provide for your medical costs post-retirement. If affording the premium is difficult, choose top-up or super top-up health plans to increase the coverage while keeping premiums low. Try increasing the coverage level as you near retirement to ensure a decent level after you retire.
Read more about Why super top-up is the need of the hour?
#5 – Continuing loans till old age
When you have loaned a part of your income is spent on paying the EMIs. If loans are continued till your old age, you would be paying off the EMIs from your retirement corpus. This would reduce the corpus and might make it insufficient for meeting other financial obligations.
Remedy – Try and pay off your loans as soon as possible. Do not continue them beyond the age of 60 years when retirement is on the horizon. Retire as a debt-free individual to have financial security.
If you are making any of these mistakes, try and rectify them. You have been given the remedy and now it’s on you to create a fool-proof retirement plan which would ensure your retired life to be a golden period.
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