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Top Mistakes to Avoid While Planning for Your Retirement

Top Mistakes to Avoid While Planning for Your Retirement

Retirement Planning

Some people think fondly of spending a comfortable retired life, while some dread reaching retirement age. The difference in this approach may speak a lot about your attitude towards life, but eventually it comes down to whether you have saved enough for your retirement or not.

Living a retired life without enough savings can really be a dreadful experience. If you and your spouse don’t want to be a burden on your children after retirement, it is best to start retirement planning early and stick to the retirement plan by all means.

Don’t make the mistake of relying on others – even if they are your own children – to take care of you when you have reached your twilight years. Why should you rely on others post-retirement when you lived all your life on your own terms? To live a comfortable retirement life on your own terms, you need proper retirement planning and to achieve that you need to avoid these common mistakes.

#1 Shortfall of retirement corpus

Imagine this situation. You are about to retire in a year but you’ve only been able to save enough to last you another 5 years, while you have perhaps 20 more years to live. This often happens if you fail to correctly calculate the retirement corpus. In a number of cases, retirees miscalculate the required size of the retirement fund. They end up having to rely on their working children, or worse, getting back to work again, if they can.

#2 Not taking inflation, life expectancy and tax into account

Shortfall in retirement funds occurs when you don’t take into consideration important factors such as inflation, life expectancy and tax liability. Let’s see how each of these factors affect your corpus.

  • Inflation The average rate of inflation in India is 6%. If your current monthly household expense is Rs. 1 lakh in 2020 and you are to retire in the next 20 years, you will require more than Rs. 3.2 lakh per month to survive if inflation rate remains the same. Thus, not factoring in inflation in your retirement plan is a big mistake.
  • Life expectancy Life is unpredictable and that’s why you have term life insurance to provide financial protection to your loved ones in your absence. However, when you undertake retirement planning, you have to earmark a retirement corpus based on life expectancy. Do you know that your life expectancy increases as you age? The table below shows average life expectancy based on current age. For example, if your current age is 30 years, you are expected to live up to the age of 75 years. Assuming that you retire at the age of 60 years, you need to build a retirement corpus that can support you for at least 15 years.

Average Life Expectancy As Per Current Age

Age

5

10

15

20

25

30

35

40

45

50

Life Expectancy

73.5

73.8

74.1

74.3

74.7

75.5

75.1

75.9

76.3

76.9

Age

55

60

65

70

75

80

85

90

95

100

Life Expectancy

77.7

78.6

80.1

82

84.5

87.4

90.6

94.3

98.3

102.6


  • Tax Tax is another culprit that can eat away your retirement savings. Therefore, invest in an instrument that offers maximum tax benefits. ULIPs are ideal for retirement plans because they provide excellent tax benefits.

#3 Not starting early

Whether you want to retire early or late, you have to start early to build a sizable corpus. Healthy retirement funds are built utilizing the power of compounding and that only works when you start early.

Whether you are buying a term insurance plan or a ULIP retirement plan, the premiums increase with age. When you start early, you are able to purchase more fund units or NAVs at a low premium and thus maximize your returns. Don’t delay in investing for your retirement or you will regret the decision after your retirement.

Quick tips on retirement planning

  • If you plan to retire in your 60s, you must invest in such a way that you will have at least 80% of your current monthly income after retirement. Don’t forget to take inflation into account.
  • Invest in investment instruments that offer more than 6% yearly returns to beat inflation.
  • Create a diversified portfolio of market-linked and fixed income instruments.
  • Buy critical illness cover and term life insurance with adequate cover for your family’s financial protection.

Unit linked insurance plans (ULIPs) allow you to have a robust retirement plan as it provides the triple benefit of insurance protection, wealth generation and tax savings. ULIPs have consistently provided returns at the range of 9-12% and they are the most tax-effective investment instruments available in India. Start investing for a comfortable retirement life with Invest 4G ULIPs from Canara HSBC Oriental Bank of Commerce Life Insurance.

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