Retirement is both a term and an emotion. I remember my father and uncles discussing retirement as a time to take to gardening and tending to grandchildren.
Times have changed, and sadly, most people never retire in the true sense now. A lot of people even don’t want to retire! They might have a formal upper cap on their age of working with an organization, but increasingly people reject the idea of complete retirement.
One of the reasons we are increasingly discarding the idea of retirement is because we have attached a negative connotation to leisure. We are driven by the idea to be “useful” and “productive,” whether our age permits.
Why Plan Retirement Investment
But irrespective of what your outlook is for retirement – to enjoy the leisure or to take up a new venture, the one thing that everyone will unanimously agree is that we must provide for the years after we turn 60. We must have some saving amount to help us pursue the way we want to live when we have reduced vitality.
As we all know (but perhaps need to be reminded now and then), the earlier we start investing, the better it is.
One of the reasons for starting investment early on in life is to save better for the retirement years. People in a government job need to worry less, as they receive a lump sum amount when they retire. They also have an active pension scheme. These lucky folks can worry a little less about reaching retirement age.
For people working in the private sector or owning a business, there’s usually no lump sum to carry home after retirement, nor a pension scheme. Some private companies do provide, but most companies evade such extra costs of providing a pension.
This results in a huge chunk of the post 60 age people in India becoming dependant on their children to take care of their needs. This has again given rise to the number of elderly abuse cases in India. Sad as it may be, it is the truth.
That is why it becomes vital to fending for your older years right from your youth. We bring to you the most common retirement investment mistakes that you can avoid to ensure you have a peaceful life after retirement.
AVOID THESE 10 RETIREMENT INVESTMENT MISTAKES
1. Not investing in a pension scheme
If your workplace does not offer a pension scheme, you can opt for the National Pension Scheme or one of the retirement plans offered by banks like HDFC and ICICI.
Most pension plans have a lock-in period until a certain age to ensure that the sum invested is kept for years after retirement.
Investing in a retirement plan or a pension plan is a way forward to secure your post-retirement age. If you are not investing in one, you need to ensure that you invest in other assets that have a lock-in period till retirement age.
While choosing a pension plan offered by different banks, make sure you understand all the plan’s terms and conditions, and get good returns on the investment.
2. Utilising PF account fund before retirement
The main idea behind the Employees Provident Fund was to provide for the future years of the employees. However, it has been common to utilize the accumulated funds in the Provident Fund to be utilized in children’s education or weddings.
So, many Provident Fund accounts are not really providing for the individual holding it, but rather providing for their children and family. Instead of being their financial hope for years after retirement, PF funds have been used to invest in the family’s needs and wants.
In many cases, such needs and wants can be deferred for a later period or engaged so that the retirement funds need not be utilized. For example, you can opt for a student loan for your child instead of giving up your provident fund sum.
It is crucial to keep your Provident Fund sum intact till you retire. Getting a lump sum out of your Provident Fund account will mean that you will have a good amount of money to invest in a business or use for monthly expenses after retirement.
3. Not investing in ETFs
ETFs or Exchange Traded Funds are cost-effective ways of investing in securities, without the hassle of daily trading. Of course, ETFs can be traded in day trading, but they tend to be profitable in the long run.
ETFs are considered perfect retirement assets as they have low fees and passive management. However, before investing in ETFs, you should do your research well, as ETFs vary in management, diversification, etc.
If you have provision to make a larger investment, go for bonds. Bonds provide back the principal sum and pay interest amounts at regular intervals.
4. Not having a Fixed Deposit
As a country, we are fixated on savings. Banks are our favorite financial destination for all things related to investment.
This is probably due to the lesser risk associated with bank savings. Interestingly, in the last decade, bank interest rates have been as volatile as the equity market, with savings interest rates dropping down to below 3%. Yet, fear of volatility keeps most people away from the equity market.
Saving a good amount of money as a one-time fixed deposit and then rolling the maturity amount again into a fixed deposit can form a part of your retirement investment planning.
Even if you start at age 35 and invest Rs 50,000 as a fixed deposit for a 1.5-year term with a 6% rate of interest, by the time you are 60, you will have close to 2 lakh rupees even more, depending on the interest rate.
I would strongly recommend a short-term fixed deposit that you keep rolling till retiring. You can start with a small deposit amount and perhaps add to it a little every time you renew your deposit term. It will be a great help during retirement years.
5. Not saving a percentage of the income in saving or investment
If you start your career early, start saving for your retirement after the first year.
If you start your career late, start saving for your retirement from the first salary.
The most common misconception about retirement for the millennials is that they will be as fit and sturdy in their 60s as they are now and can put in 10 hours of vigorous work.
If you think you need not save for retirement since you’ll be active enough for some full-time employment, think again.
Even for people in the business, putting in long hours after a certain age can lead to total burnout. And that is why we must save when we can so that we can thrive when we cannot.
We must save at least 10% of our income and invest it. A part of this monthly investment must be kept aside as a part of our retirement investment.
Don’t be one of those old folks who look back and realize that they could have saved all the money they spent on soda and weekend parties. Sure those are important, but we need to strike a balance to save along with spending.
6. Not maintaining a diverse investment portfolio
The main reason for maintaining a diverse investment portfolio is to ensure that if one asset value goes down, the others will make up for it. A diverse portfolio spreads out the risk evenly, making investment overall profitable.
A diverse portfolio also means that you include both long terms and short term investments. Long term investment in bonds or ETFs can give good returns for retirement years.
A diverse portfolio can also contain assets like property, proving to be an excellent source of passive income for older years.
7. Selling off ancestral property assets/ village property for short term gains
While this point might seem weird, it is included keeping my personal observations on ancestral property buying and selling and the outcomes of such a transaction.
Many of our older generation that moved to cities for work sold off their portion of ancestral land in villages for various reasons. Some bought their house in the city; some invested the money in their children’s college education.
With rapid development in our country in the past 20 years, many of these villages have grown into prosperous towns and suburban areas with a lot of business and work scope.
So my advice would be not to hurry off in selling off your ancestral village property. After retirement, you can use it for some business purpose.
You can convert it to an Airbnb property or transform it into an event venue for weddings and occasions.
8. Spending all investment on big fat Celebrations
Weddings are all fun and dance, but depleting every saving and investment to organize lavish weddings for your children can wreak your financial health.
We do attach a social stigma to people who prefer affordable celebrations instead of indulgence. But that’s what it is – a social stigma. Think before investing in celebratory events – do they cost you your retirement savings?
If they are, you need to cut down on lavishness. It is better to celebrate modestly than end up in penury in old age.
You can save and invest separately in short term investment strategies for events like weddings, but try not to touch your retirement-related investment for the same.
9. Not maintaining a health insurance plan
Not having a health insurance plan is a grave miss-out. We all know that one hospitalization for a serious illness can cost us our fortune and can even land us in debt.
A health insurance plan can take care of a substantial percentage of health costs. The analysis shows that health costs increase after 40 years. So even if you hesitate to buy yourself a health insurance plan in your 30s, get one before you turn 40.
10. Not having a life insurance
This is especially for those individuals who still do not own a life insurance plan.
Life insurance is an advantageous asset. You get back the amount you paid after your term is over, and in the unlikely event of death, your family gets back an assured sum.
Ensure that your life insurance term is timed such that you get your maturity amount after retirement. You can then choose to secure the sum into a fixed deposit or put it in some business idea.
The basic idea about putting up this article is to direct your attention to this one fact – please think about your retirement years in advance. Investment for the future is as important as living your life now.
If you have any suggestions when it comes to retirement planning, let us know! We would love to hear!
Share the article with friends and family or share it through your social media. It might act as the perfect reminder for someone you love or know.