Ignoring other goals
While planning for retirement is critical, do not ignore planning for other goals. “Along with retirement planning, one should also plan for any pending expenses such as kid’s higher education, wedding, etc.,” says Gaurav Mashruwala, a Sebi-registered investment adviser.
If you do not plan for such goals, you may jeopardise your retirement. “If you don’t plan for other critical goals, you may end up dipping into your retirement corpus to meet them. This diversion of the retirement fund is proving to be a big worry,” says Sumit Shukla, CEO, HDFC Pension Funds.
It can be difficult for parents to deny higher education opportunities to their kids because their retirement kitty may be compromised. Besides kid’s education, people tend to withdraw money from their EPF to buy a house, for child’s marriage, medical emergencies, etc., leaving a very small corpus to meet retirement needs.
Not planning for regular income
Generating regular Income is essential to securing one’s retirement. Gradually withdrawing money from the accumulated corpus may not be the most suitable option. Investing in an annuity can help you earn a regular income. But their annual return is low—around 6.5%—and they are also taxable. However, experts advise people to invest a part of their retirement corpus in an annuity. “Annuity is guaranteed income for life. It makes sense to invest some of your funds, even if the return from the annuity is a bit low,” says Balram Bhagat, CEO, UTI Retirement Solutions.
Anil Lobo, India Business Leader, Retirement, Mercer, concurs: “A guaranteed regular income can generate a lot of comfort for retired people.” Though most may be able to manage their money at the age of 60, it may become difficult in later years. “Since return from annuity is low, and it is also taxable, one can’t fully depend on it.
So it makes sense to park a small portion in an annuity to have guaranteed income and the rest in regular interest bonds or mutual funds and go for systematic withdrawal plans (SWPs),” says Lobo. One also needs to invest the remaining money in growth-oriented assets so that the corpus lasts longer.
No post-retirement planning
Experts say that retirement planning should not stop at the age of retirement. It should include planning for the period after retirement as well. “Planning for the post-retirement phase is critical. Financial requirement is like the three stumps in a game of cricket—liquidity (for contingencies), regular income, and growth of the remaining corpus (so that it lasts longer),” says Mashruwala. Also, just like during one’s earning phase, a contingency corpus that can take care of 5-6 months of expenses is a must after retirement too.
Retreating from all work
Keeping oneself engaged in some activity after retirement is critical. The chance of falling sick is higher, if you suddenly shift to a sedentary lifestyle, say experts. Fighting boredom during retirement can be tough and lead to stress. “Though opportunities are less for senior citizens in India, you can still find some work, and retired people should take it up,” says Lobo.