Rightly referred to as the golden years of life, retirement is the time when you no longer have to worry about work and you can live the way you want. You can travel, pursue your hobbies and dreams, and even move out your home to live in the country-side and spend quality time with your family.
Retirement as a phase is characterized by expenditures to take care of your responsibilities along with fulfilling your dreams. Therefore, in order to enjoy your retirement to the fullest and be able to fulfill your responsibilities, it is important to start planning your retirement finances from an early age and ensuring that you avoid common mistakes such as the ones listed below:
Mistake #1: Not Establishing a Solid Retirement Savings Plan
Saving for your retirement is a long-term activity. You will spend many years of your life building your retirement savings, which is why it is crucial to have a plan in place. You should start by estimating your monthly financial needs after retirement keeping in mind the size of your family, the number of dependants you are likely to have during retirement, and the expenses for each person, including yourself. An annuity plan is one such financial
instrument designed specifically to meet your financial needs after retirement. Eg. With ICICI Pru Guaranteed Pension Plan, you are given a post-retirement guaranteed income 1 for a comfortable life. This plan gives you regular payouts which allows you to take care of your day-to-day expenses as well as bigger life expenses such as medical expenses, expenses of child’s wedding and payment of outstanding loans, etc. You can also claim tax benefits under the existing rules of the Income Tax Act 1961.
Mistake #2: Ignoring Healthcare Expenses
Retirement is the golden age, but it is also the age that is most susceptible to critical illnesses and health issues. As you grow old, the risk of critical illnesses and your healthcare related expenses will also increase. Paying for even these critical expenses can put a significant dent on your savings. Therefore, having an insurance becomes a must at this age.
Mistake #3: Taking early withdrawals from your retirement plan
Taking untimely withdrawals not only hampers your overall savings but also increases your tax liabilities. Untimely withdrawals from your retirement plan reduces the amount of funds saved for your retirement. Making such withdrawals eventually eats into your retirement funds. A better option would be to plan your investments in such a manner that one of them matures right when you hit 40 years of age. That way, you have a good bit of funds coming your way right in time to meet major expenses like buying a house. Like this, it’s important to plan your finances for each milestone between now and retirement, so you don’t dilute your returns.
Mistake #4: Carrying Debt into Retirement
With no source of income and a limited pool of funds, carrying debt into retirement can be difficult to manage. Although most people plan for loan repayment through their regular income sources, it is crucial for them to plan for the repayment of such a loan in the unfortunate event of their absence.
Mistake #5: Thinking it’s Too Early
The best time to start saving is as soon as you start earning. Assuming that you start working at the age of 21-24 years, and will retire at the age of 60, you will have another 35-40 years to your retirement. Savings and investment returns become the only source of income in your retirement years. Therefore, the sooner you start, the bigger pool you can create by the time you retire. Additionally, retirement planning early on also opens up the possibility of an early retirement. Indians are now increasingly considerate of this facet and are starting
their retirement planning earlier than the previous generations.