How NOT to plan your Retirement!

There’s lot of advice floating around on how to plan for your retirement. We felt it was high time someone provided some advice on how NOT to plan for your retirement! If you’re already doing one or more of these, you might want to reconsider your stance.

Avoid Mutual Funds

One of the biggest Retirement Planning mistakes you can make, is to stick with traditional, low return instruments and avoid Mutual Fund Investments. Simply put, when it comes to Retirement Planning, Mutual Funds Sahi Hai! It would be much wiser to channelise your long term retirement savings into aggressive, equity-oriented Mutual Fund investments through SIP’s (Systematic Investment Plans) instead.

Save According to Today’s Expenses

If you want to retire with a woefully inadequate sum of money, the best way to do it is to save for your post retirement years keeping today’s expenses in mind! Rs. 50,000 per month might suffice today – but may actually be worth only Rs. 8,000 or 10,000 per month in the year that you retire.

Start off in Your Forties

The best way to retire with too less is to postpone your retirement planning until you turn 40! After all, you have a good 20 years and that will surely suffice, you may think. Big mistake! Let’s put the numbers in perspective for a moment. For a 40 year old to save 5 Crores for their retirement by 60, a monthly saving of at least Rs. 50000 is required. For a 30 year old, the number drops to under Rs. 15000. That’s how compounding works!

Save in Low Risk Instruments

One of the easiest ways to ensure that you outlive your retirement savings is to save for your retirement in low return instruments that give you annualized returns of 7% to 9%, or even lower. Even the proverbial darling of Indian savers (PPF) earns you 8.1% per annum. Let’s take a look at how the numbers add up: Rs. 5000 per month saved up in an instrument earning 12% compounded will grow to approximately 1.75 Crores over 30 years. The same amount would add up to approximately 75 lacs in an 8% return instrument.

Don’t Factor in Your Medical Expenses

Another way to set yourself up for post-retirement strife is to not factor in rising medical expenses that you’ll most likely incur post-retirement. Fidelity Investments, which tracked retiree health care costs in the U.S for more than a decade, estimated that a 65-year-old couple retiring in 2013 will need $240,000 (Rs. 1.59 Crores in today’s terms) to cover future medical costs. Although we don’t have a comparable long term study for India, it would be safe to assume that at least half this amount should be planned for by you. Bear in mind that Health Insurance becomes frightfully expensive for senior citizens as well.

Depend upon Your Kids

This is the best way to incur both Financial AND Emotional strife after your retirement. Hard hitting as this might sound; your children are not a contingency plan when it comes to retirement. Joint families in India are breaking down and in today’s complex and high stress world; personal relationships are constantly under threat. Why would you want to take the chance?