Being a bank employee with conservative financial outlook, Mr. Sharma had parked his retirement corpus – his savings, the amount of gratuity and provident fund – in bank fixed deposits, long-term 6% government bonds and an endowment life insurance policy.
Now, as you can see, his investment portfolio lacked completely of the dynamic investments like Mutual Funds, MF Pension Plans and retirement plants that could generate high returns and capital appreciation.
A couple of years after his retirement, Mr. Sharma’s wife got terminally ill and hence, most of the funds from his endowment life insurance policy were used up for her treatment. She, being a housewife, was never covered for health insurance or any other life insurance.
Though she recovered, this illness derailed Mr. Sharma’s financial planning for his retirement completely and he has to depend only on the interest income from his fixed deposits and 6% bonds to provide for his cost of living. Continued medications for his wife and rising inflation put further pressures on his finances.
Need for Financial Planning for retirement:As we have seen from the example above, a sound financial planning for retirement is a must for the following reasons:
- Higher life expectancy
- Willing to continue with the same high standard of living as before retirement
- For a peaceful retirement period filled with interesting experiences and dream vacations
- To battle rising inflation resulting in higher costs of living
- No secured income like pension after retirement
- Rising medical costs
- Possibility of being redundant due to sudden changes in technology and having to retire early
- Decreasing social safety net and nuclear families
Factors that may damage your financial health, if you fail to devise and stick to sound financial planning for retirement:
- Unrealistic financial goals like wanting to retire at the age of 40 and going on dream vacations without having a solid investment base
- Making impulsive purchases
- Changing the course of investments abruptly without consulting a professional financial advisor
- Indulging in speculations rather than investing
- Starting with investment planning in the later stages of the career rather than at the beginning
- Sudden medical or other emergencies in the family
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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