Mistakes to Avoid While Investing For Retirement

  • Retirement Planning Articles

You know what they call the retirement phase, right? Golden years, they say. Perhaps it points to life after 50, since the 50th year milestone is often called the golden jubilee. Or perhaps, it means that life after retirement means you no longer need to hustle or worry. You can finally relax, take the time out for yourself, and do what you've always wanted to do.

This paints quite a pretty picture, doesn't it?

The truth is, you can make this dream of a happy, carefree retirement come true. The catch, however, is that you need to have the right financial plan for it. And that financial plan needs to be error-free.

Sounds a bit challenging, right? But don't you worry. You can start by understanding the common mistakes that people make when they invest for their retirement. This can help you steer clear those same pitfalls.

So, here are 5 mistakes that you need to avoid while investing for retirement.

  • Putting off retirement planning

    When you're young - in your 20s - your retirement can seem miles away. It's natural to put off retirement planning and focus on other immediate life goals. In fact, many people wake up to the importance of retirement planning only after they're married and have children. However, this could prove to be a costly mistake.

    The sooner you start investing for your retirement, the bigger your retirement corpus could be. Check out the examples below to understand how a small delay can cost you greatly.

    Scenario 1:

    Particulars

    Details

    Age at which you begin investing for retirement

    25 years

    Age at which you plan to retire

    60 years

    Time available for building your retirement fund

    35 years

    Amount invested per month

    Rs. 5,000

    Total amount invested over 35 years

    Rs. 21 lakhs

    Expected rate of returns

    12% per annum

    Amount available at the end of 35 years

    Rs. 3.2 crores


    Scenario 2:

    Particulars

    Details

    Age at which you begin investing for retirement

    35 years

    Age at which you plan to retire

    60 years

    Time available for building your retirement fund

    25 years

    Amount invested per month

    Rs. 5,000

    Total amount invested over 25 years

    Rs. 15 lakhs

    Expected rate of returns

    12% per annum

    Amount available at the end of 25 years

    Rs. 94.9 lakhs


    The cost of a delay of 10 years is around Rs. 2.2 crores!

  • Ignoring the effect of inflation

    Now, you may perhaps be wondering why the second scenario we saw above is so bad. After all, you get to build a corpus of almost Rs. 1 crore. And that should be more than enough for your life after retirement, right? Well, it may be enough today. But will it be enough in the future?

    To answer this question, we'll need to take a look at the second most common mistake - ignoring inflation.

    Inflation refers to the increase in the prices of goods and services over time. Take your favorite chocolate bar, for instance. Five years ago, you may have purchased it for Rs. 10 each. Today, the price may have risen to Rs. 20 each. Or, the price may have stayed the same, but the size of the bar may have reduced.

    Either way, over time, inflation reduces the purchasing power of your money.

    This means that if you need Rs. 15 lakhs per year to survive comfortably, you will need Rs. 26 lakhs or so to maintain the same lifestyle 10 years later, assuming the inflation rate is 6%. So, when you are calculating the amount you need for your retired life, ensure you factor in inflation for a fair estimate of your requirements.

  • Not insuring yourself

    Life insurance is another important area that people often overlook. The reason may be that most people look at a life cover as a way to protect their family in case of their untimely demise. And while that is true, life insurance offers many other benefits as well.

    Retirement plans, in particular, are specifically tailored to meet your post-retirement needs and goals. In addition to a life cover, these plans also give you financial benefits in the form of a lump sum payout, periodic payouts, or a combination of the two.

    The ABSLI Guaranteed Annuity Plus Plan, for instance, gives you 10 different plan options to choose from. You can choose the plan with the benefit payout structure that meets your individual needs perfectly.

    Here are some ways in which not including life insurance in your portfolio can affect your post-retirement life.

    • It may leave your spouse without financial security.
    • It could leave any other dependents without any financial support.
    • You may not be able to leave a sizable inheritance to your children.
    • You may be financially unprepared for emergencies like surgeries, accidents or critical illness diagnoses.
  • Carrying debt into your golden years

    When you retire, you lose your main source of income. And if you planned well, the income from your investments may be enough to help you lead a comfortable life. That is, as long as there's no debt in the picture.

    Many people make the mistake of carrying their debts into their retirement years. Or take a loan too close to retirement. If your investments failed to account for this, you may find yourself in a financial crunch in your 60s, and that's certainly not something you want to go through.

    So, plan your debt repayments early in life, and try to fund your life goals with investments rather than debt alone. This way, you can pay off any loans you have by your 40s or early 50s, and live your post-retirement life debt-free.

  • Overlooking healthcare costs

    There's no doubt about it. The costs of healthcare are on the rise. Health inflation1 in India was just 3.8% in December 2019, and it rose to 7.7% in June 2021. And the older you get, the higher the chances of developing conditions like diabetes, heart ailments or other critical illnesses.

    If you're not prepared for the medical costs that you may face in your post-retirement life, they could eat into your retirement pretty quickly. And unfortunately, many people fail to account for this major expense when they're investing for retirement. Thankfully, you can do better.

    Here are some ways to be better prepared for rising medical costs.

    • Invest in a health insurance plan.
    • Have an emergency fund exclusively for medical needs.
    • Purchase health-related riders along with your life cover.
    • And take good care of your health.

Last words

You may have already avoided some of these mistakes, while you may be guilty of others. But it's never too late for course correction, right? So, if you find that you've overlooked some important areas or ignored some important needs, make sure you account for them sooner than later. That way, you can look forward to a bright and financially secure life after retirement.

1https://www.thehindu.com/data/data-medical-expenses-climb-after-second-wave-adds-to-financial-stress/article35375720.ece
ABSLI Guaranteed Annuity Plus (UIN: 109N132V01)is a Non-Linked, Non-Participating, Single Premium General Annuity Plan
ADV/9/21-22/1187

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