The retirement age is no longer 60. Today people want to retire early and enjoy life. Assuming a life expectancy of 85 years, a person has 30 years to earn and build a corpus to be used over the next 30 years. Apart from the lack of social security system in India, retirement planning assumes greater importance given the changing demographics, rising medical costs, higher life expectancy and growth of nuclear families. Despite the growing uncertainty, retirement planning in India does not get the importance it deserves. Retirement planning begins after all other life goals are met. But by then it is too late.
Some of the most common mistakes to avoid in retirement planning are:
- Late start: Start savings early, no matter how small they are, compounding over several years will go a long way in building up a retirement corpus.
- Investing heavily in non-financial assets like real estate and gold: Indians live poor but die rich, largely because they invest in assets that have an emotional pull and are difficult to liquidate. In addition, children may be too busy maintaining assets outside of their workplace. So, think twice before moving to another house.
- Ignoring term plans earlier in life: Life is uncertain. What about the financial security of your spouse or dependent family members in your absence. Take an adequate amount of coverage through a term plan, take it early in life, when the premiums are low.
- Mediclaim ignored: Medical emergency can hurt your retirement planning the most, keep a medical policy. Always carry a critical illness rider if there is a family history.
- Wrong Insurance for Investment: While the importance of insurance can never be underestimated, do not make it a part of your investment portfolio. Think of it as an expense.
- Not taking into account inflation, specifically lifestyle inflation: Your monthly expenses can increase 5 times in 25 years. Make a plan for it.
- Late planning for home: If you are planning to take a home loan, cover the EMIs well before you retire. Don’t retire with a loan.
- To be completely dependent on children: It’s a tough world outside. Children can have commitments of their own. It may or may not be possible for them to handle your responsibility with ease. Perhaps her in-laws will also need her support. Don’t be a burden Be independent.
- Copying your friend’s/relative’s retirement plan: Times change, so do the returns and risks associated with the product. What works for your father or friend may not work for you. To plan your retirement, give importance to liquidity, tax efficiency, returns and risk associated with various instruments while investing in a product. Don’t try to be a money wise pound fool. If you don’t understand a product, seek help from someone who isn’t necessarily a friend. Most of the time people buy products that are not suitable for them and have been discontinued for years and no one else but themselves are to blame.
- Not ensuring regular income after retirement: Invest in a way that ensures that you get a regular income to cover at least your monthly expenses.
Savings are no longer enough. Investment! Invest in a combination of assets like Equity, Debt Gold and Real Estate. Starting early, having realistic goals and a bit of fiscal discipline is all it takes to create a corpus that will help you sail through life’s golden years with ease and leave a legacy behind to the next generation when it comes to making the final bid. Time bye.
No one ever said I started my retirement planning too early.
If you can’t start today, start planning your retirement from tomorrow.
Views are personal: Author – Shyam Agarwal is a Mutual Fund Distributor from West Bengal.
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