Retirement surely is a blissful phase. No more deadlines to meet. No more pestering from the boss. No need to rush through the morning to catch an early train. Just you and your loved ones and all the time in the world to leisure and fun activities or hobbies which you never got time to fulfill in your youth.
However, to make it possible investors have to be extra cautious when planning for their retirement. The main thing about retirement planning is that if you start early with your investment journey, the chances of you achieving your retirement goals. The only way to ensure that you are able to lead a stress-free retirement life is to ensure that you save and invest enough so that you are financially equipped especially when your main source of income i.e., your monthly income comes to a standstill once you retire.
One way to plan your retirement realistically is by considering retirement mutual funds that have been generating way better returns than traditional investment instruments like public provident funds.
Here are the common mistakes which individuals should avoid while planning for retirement:
Failing to assess the retirement corpus
When planning for retirement, people forget to take certain things into consideration like the expenses that they will need to bear to continue leading their current lifestyle. Do not think of retirement as portrayed in the popular media, be realistic about your goals. If you wish to continue leading the same lifestyle as you are right now, think of inflation and then think about the monthly budget which you should be able to afford post retirement. If not, then are you willing to live on a fixed budget? When these questions are answered you will exactly know the kind of money your need to lead a financially independent retirement life.
Failing to keep a separate emergency fund
You will probably retire by the age of 60 and at this stage, there are chances of you picking on some type of ailment. Medical expenses can severely exhaust your retirement corpus which is why people should build a separate emergency fund to tackle their life’s unforeseen exigencies. You can consider a liquid fund to build an emergency fund as it offers immense liquidity and invests in a portfolio of fixed income securities that have a low portfolio maturity.
Entirely depending on traditional instruments
Most employers have EPF or Employee Provident Fund where a fixed income is debited from the individual’s monthly salary. Since this is already a traditional investment instrument that you are investing in, there is no need for any more traditional investments. The sole reason is that traditional instruments offer a low fixed interest rate that is hardly going to help you cover any costs. On the other hand, if you invest in mutual funds you might be able to build a commendable retirement corpus. Solution oriented schemes like retirement mutual funds invest in a mix of equity and debt related instruments and are known to outperform any type of traditional retirement scheme in the long run.
Starting late
People ignore retirement at an early stage in their life as not want to think of what life will be when they turn old. However, one should be realistic and do not wait for retirement planning when they turn old as it will be too late. Say you want to build a corpus of Rs 5 crores for retirement when you hit 50. How do you plan to build such a corpus in 10 years? But instead, if you started investing small sums at the age of 30, you would have managed to achieve the desired corpus over the course of the next 30 years.