Touted as the golden years of life, retirement is a phase when it’s time to enjoy the fruits of years of hard work. It is the time to sit back, relax and do things you always wanted to do but couldn’t due to professional and personal commitments. However, for this to happen, it’s important to plan it the right way. In this article, we will tell you the mistakes to avoid while planning for this essential life goal.

Giving inflation a miss

Ignoring inflation should be the last thing in your mind while planning for retirement. This is because inflation pushes up the cost of living and brings down the value of money over time.

For instance, if are aged 30 now and wish to retire by 60, with a current monthly expense Rs. 30,000, by the time you hang up your boots, you would need close to Rs. 1.3 lakhs every month. Thus, it’s imperative to build your retirement nest by factoring in inflation.

Not investing in equities

With the days of pre-defined pension benefit over, it’s essential to build a retirement corpus by investing in various financial instruments. However, often most people tend to build this corpus by investing solely in fixed-return instruments, the returns of which can hardly beat the effects of inflation.

In this scenario, equites are your best bet as this asset class has the potential to deliver inflation-adjusted returns in the long run compared to other instruments. A prudent way to invest in equities is through a systematic investment plan (SIP) in an equity-oriented mutual fund. Even a modest SIP of Rs. 10,000 per month in a fund offering annualised returns of 12% for a period of 30 years, would help you garner a corpus over Rs. 3.5 crores.

Keeping health insurance off the hook

For retirees, health expenses constitute a significant portion of their monthly budget. Apart from regular visits to doctors, buying medicines and undergoing diagnostic tests, there are chances of procuring a major ailment that can erode a large chunk of the retirement corpus. An effective way to remain financially guarded against these is health insurance.

A health insurance plan not only prevents out-of-pocket expenses but also ensures your retirement corpus remains intact in the face of a medical crisis. Along with a regular health insurance plan, it’s vital to have a critical illness policy in the portfolio as the latter provides a pre-defined sum insured upon diagnosis of a critical ailment, the cost of treatment of which can run into several lakhs of rupees.  It’s better to opt for a health insurance policy early as premiums increase with age.

Ideally, retirement planning should start the day you start earning. An early start would give you more chance to grow your money and plan it effectively.

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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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