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There are some people who desire to live a comfortable retirement, while others dread reaching that age. Where you stand on this issue speaks a lot about your attitude towards life, but ultimately your retirement fund will dictate whether you are prepared for it or not. Without enough savings, retired life can be a very dreadful experience for you and your spouse. If you don’t want to be a burden on your children after retirement, you should start planning at an early age and adhere to the plan.
You shouldn’t rely on others – even your own children – to take care of you after retirement. Why should you rely on others when you lived your life on your own terms? Planning is vital if you want to enjoy a comfortable and fulfilling retirement, and you can do so by avoiding these common blunders.
The first problem is the deficit in retirement funds
It is not unusual to fail to correctly calculate your retirement corpus until just before retirement. Let’s suppose you have 20 years to live and you have only saved enough to last you another five years. A lot of retirees underestimate the size of the retirement fund they need, which leaves them depending on their working children, or worse, getting back to work.
The second is not taking inflation, life expectancy, or tax into account
You are likely to run short of retirement funds if you do not account for inflation, life expectancy, and taxes. Let’s see how each of these factors impacts your corpus.
- Inflation: According to the Indian Central Statistics Office, India has an average inflation rate of 6%. If you are to retire in the next 20 years and your current monthly household expenses are Rs. 1 lakh, it will require more than Rs. 3.2 lakh per month to survive if inflation remains the same. Inflation should be factored into your plan.
- Life expectancy: It is important to earmark a retirement corpus based on the life expectancy when you undertake planning. Life is unpredictable, which is why you have term life insurance to protect your loved ones financially. Life expectancy increases as you age, as shown in the table below. If your current age is 30 years, you can expect to live up to 75 years. Assuming you retire at 60, you need a retirement account that can satisfy your needs for at least 15 years.
- Tax: You should invest in an instrument that offers the maximum tax benefits for your retirement plan. ULIPs are excellent for retirement plans due to their excellent tax benefits.
The third mistake: Starting too early
The only way to build a sizable fund is to start early. The power of compounding can be utilized only when you start early. In both term insurance and ULIP retirement plans, premiums increase with age. By starting early, you are able to purchase more fund units and NAVs at a lower premium, which maximizes your return. Invest in your retirement now, otherwise, you will regret your decision afterwards.
Quick tips on retirement planning
- In order to retire comfortably in your 60s, you must invest in a way to maintain an income of at least 80% of what you earn now. Don’t forget to factor in inflation.
- Beat inflation by investing in investments that offer more than 6% yearly returns.
- Establish a portfolio of market-linked and fixed-income instruments.
- Protect your family financially by buying life insurance with critical illness coverage.