Retirement is a life-altering event that changes the way you live, your spending habits, the way you think about finances, the way you think others value you, and so on. Much and more is said about retirement, and financial managers will make you think it is some super-complicated endeavour that requires endless calculation and lots of toil. Nothing could be further from the truth, as we will see in this brief piece.
Having said that, though, without a solid retirement plan that you start in your 30s or 40s, you will most likely end up being a burden on your kids. So, to retire into a rich and independent second innings full of foreign travel and splurging on grandchildren, stop making the common mistakes most working Indians make and do something today that your future self will thank you for.
#1 – Plan early and retire in style!
This one point is the most crucial one for retirement planning, as you’ll see in the example below.
Studies show that retirement planning is never taken seriously, especially in India. Out of ten, only three people save regularly for their retirement in our country. The rest procrastinate, thinking that they have a lot of time left or they will start investing when their salary increases. This is the wrong attitude to have. Time runs quickly, and you will lose the benefits of saving early. Let’s see an example.
Example: When 30-year-old Sachin invests Rs 3,000 in a retirement plan for 30 years, he receives a pay-out of Rs 44 lakhs. However, when 35-year-old Bharat invests Rs 3,000 in a retirement plan for 25 years, he receives a pay-out of only Rs 28 lakhs. This is a difference of Rs 16 lakhs (44 – 28 = 16) because of starting merely 5 years later!
#2 – Save/invest with a goal
Having a tangible, achievable goal makes the effort of saving and investing worthwhile. Saving without a goal is meaningless because you are not focused that you need to save Rs XYZ for ABC goal. What might happen then is that you will end up building an inadequate corpus or use up your savings to meet other expenses. Having an idea about how much you will spend every year in your retirement years will help you understand how much you need to invest and where you need to invest, keeping in mind factors like inflation, age, income, expenses, and financial dependencies on you.
Take Home: Retirement planning is a goal-oriented exercise. Choose a retirement plan that is tough to exit from!
#3 – Don’t touch that fund!
It’s pretty common for people to tap into their retirement funds in case of a cash crunch. This is a big mistake, as this is equivalent to reducing years of vesting from your fund!
Take Home: Unless it’s a life and death situation, do not touch your retirement funds until you cross 60 years of age.
#4 – It’s NOT okay to rely solely on children for retirement expenses
Parents being dependent on their children is a common scenario in almost every Indian household. As the child starts earning, parents start relying on their income. This is a serious and common mistake made by many. By not planning for your retirement now, you will financially and emotionally burden your children in the future.
Take Home: Plan your retirement and live a financially independent life in your sunset years.
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