Retirement planning should start at an early age. In our country not many think about it. Either they take it as a far-away contingency or they lack knowledge about planning it.
The common mistakes that may affect the retirement finance goals are-
Delayed Planning: Eligibility to pension is one of the excuses. Both the government and private sector employees should know how much contribution they are making to the pension fund regularly and whether that will suffice their monthly expenses after retirement. While we are young, we should never inculcate a habit of taking this lightly or think that there are many years left to earn and plan. The sooner, the better should be the motto. If a person starts saving young, he/she keeps aside a small amount of money for many years. So relatively a small sum of money goes to the old age savings. But if the decision is delayed by say ten more years, more money they shall have to save and contribute towards their retirement funds as they already lost months and years of their earning life. The misconception that later years of life will be salary wise more productive could prove to be costlier.
Commitment issues: What if one starts earning and saving early but fails to be consistent in doing so? Spending frivolously at younger age, thinking that when we grow old, we will not need so much money to meet our ends is to another major mistake. Frequent withdrawals from retirement related investments too are not welcome approach. Old age could bring heavier medical expenses. With increased life expectancy, we need to plan for those extended years of life when there is no source of income and continuously contribute towards it.
Getting a clear idea: Looking to the income and expense patterns, own financial goals should be set. Housing and vehicle loans, higher education cost of children, weddings etc. must be kept in mind. Over and above these known responsibilities, emergencies too should be planned. As per the earning-spending and saving pattern, a clear-cut projection about the financial status in retirement life needs to be made.
Current lifestyle vis a vis retirement: If we want to keep the same lifestyle as we have now, at least 30 years it takes to plan. Both the monthly expenditure and health related expenses combined with life expectancy, inflation and cash flow requirements help to assess the picture.
Legacy planning: Partners need to be involved while planning finances for future. Many do this mistake and keep their spouse unaware about the planning. Savings and investment must be decided mutually. Life insurance helps to support against odds. By paying a low premium, term insurance assures high sum. This benefits the surviving partner and his/her children in case of premature death or disability of the person. Retirement could affect relationships with one’s partner due to zero earnings and low investment portfolio. Though one might be covered by corporate policies, taking health policies at a young age is a must.
Balancing Investment to get maximum outcome: Retirement corpus must be invested wisely. The money which needs to be withdrawn at the time of retirement may again pause a problem. PPF is a good option unlike EPF which can continue even after retirement and reinvestment at a later age is not required. Liquidity is often given more weightage which attracts one to bank FDs. Safe options with better returns can benefit more. High-cost products should be avoided. NPS is the lowest cost tool as against retirement and pension plans. If the corpus is parked in low-risk products, it won’t be able to beat the inflation.
Smrutirekha Bhoi