3 min read
Dec 15, 2023
Is your retirement dream one of idyllic bliss? One where you are basking under the sun with a cup of tea in your hand? A future that many of you dream of, right? But it’s also one that’s often within your grasp yet derailed by overlooked missteps in planning.
Your financial future doesn’t have to be a maze if you arm yourself with correct information. Let’s explore common mistakes one makes and let us see how to avoid them with help from the right tools.
Some common mistakes that most people tend to make when planning for their retirement include:
1. Starting late
The golden rule of retirement planning is to begin early. The longer your money has to grow, the more you benefit from the compound interest. Remember, it’s not just about the amount you save but also the time you give your savings to flourish.
Also Read Five smart investment avenues to plan your retirement
2. Not considering inflation
Inflation is the silent killer of purchasing power. ₹100 today won’t have the same value in the coming decade. When planning for retirement, ensure you factor in inflation so you’re not caught off-guard with rising costs.
For instance, let us assume you are 45 years of age and your current monthly expenses are Rs 50000. Let us also assume inflation is 6% per year. Within 15 years, i.e. by the time you are 60 years old, or when you reach retirement age, your monthly expenses are likely to cost you ~Rs 1.2 lakh.
While we are assuming that your expenses remain unchanged for 15 years (for the sake of easy calculation, this example is to show why you must save more today to account for higher expenses in the future.
3. Overlooking diverse investment options
Diversifying your portfolio is fundamental. Whether it’s the steady Fixed Deposit Interest Rate with an FD, inflation-beating returns with equity mutual funds, or the long-term benefits of a Public Provident Fund Account, spreading your investments mitigates risks. Axis Bank offers online opening of PPF where you can link your Savings Account to your PPF Account and save regularly to build your retirement corpus.
4. Not revisiting your retirement plan
Set it and forget it? Not quite. Financial goals, market conditions, and personal circumstances change. Regularly review and adjust your retirement plan to ensure it’s aligned with your current situation.
5. Ignoring tax-saving instruments
Tax can eat into your savings if you’re not careful. Products like the NPS Account not only cater to retirement savings but also offer tax benefits. The Axis Bank NPS Account, for instance, blends retirement planning with potential tax savings, providing a win-win for investors.
6. Failing to factor in healthcare costs
Health issues can spring up with age. Neglecting to earmark funds for health can dent your savings. Buy a health insurance plan early on, even if you are working and covered by your employer-provided health care plan. If you wait till retirement to buy a health insurance plan, you will have to pay a high premium, given your higher age. What’s more, if you have developed some chronic ailment by then, you may find it difficult to buy a health insurance plan.
7. Banking solely on pensions or gratuities
Relying only on pensions or employer-provided gratuities can be a precarious move. Diversifying your savings is paramount due to the unpredictability of job markets and economic downturns. It is also important to invest in a mix of asset classes, such as equity and fixed income. This will help reduce the risks from changing interest rates and volatile equity markets. While equity will help your portfolio to grow, fixed income will provide stable returns, both of which are essential to generating sustained income during your post-retirement years.
Also Read: How to plan finances in the post-retirement phase of life
Conclusion
By avoiding these common pitfalls and investing in instruments such as PPF, NPS, and equity funds, you’re better positioned for a retirement that mirrors your dreams. Remember, it’s never too early to start, and with the right tools, it’s never too difficult either.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
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