Plan for the golden years in advance
If a large number of senior citizens are not in a position to spend their golden years by going to cruises or doing things they always wanted to do, it's because they have fallen prey to some common retirement pitfalls.
For those who are still some years away from retirement, there is still an opportunity to plan so that the post-retirement years are something to look forward to.
My kids will take care of me
Most Indians think of life merely in terms of fulfiling responsibilities. The common assumption is that looking after retired parents is the responsibility of children. Such beliefs are, however, history with the advent of the nuclear family system. Even if you are are blessed with caring son or daughter, longevity will make it difficult to meet parental responsibilities. Imagine a situation where a 95-year-old is dependent on a 65-year-old.
Not knowing how much to save/invest
Inflation is a silent and an extremely efficient thief. It robs a sizeable value of your savings over a period of time. If we continue to have 6% inflation, items that are available for Rs 100 today will cost Rs 768 after 35 years. There are calculators available on many websites, which you can use to ascertain the price you will pay for your 'dream' lifestyle at the time of retirement.
Not now syndrome
If one prefers to spend for short-term consumption goals over the long-term retirement goals, it costs dear. Start as early as you can. Rs 100, if allowed to earn 15% compounded interest annually for 35 years, would grow up to Rs 13,317. But, the same amount would bring a sum of Rs 3,291 if you invest it for 25 years. The difference of 10 years makes a big difference.
Using retirement funds prematurely
Jumping jobs is the order of the day. Many individuals prefer to withdraw the money they have accumulated in provident fund. This hurts the retirement corpus building. The provident fund should either be transferred and if it is withdrawn, it should be invested in PPF or some other long-term conservative investment product such as pension fund.
Asset allocation
These two words define the difference between retiring rich and retiring poor. Getting into the right asset at the right time matters a lot. This is not an easy task. Hence, it makes sense to stick to a predefined asset allocation depending on the risk profile you have and the financial goals you intend to achieve.
Portfolio rebalancing, taking into account the asset allocation at regular intervals, is a must for attaining financial success. Instead of choosing something that is fashionable, it makes sense to be with plain vanilla products. Index funds are the best options for those who intend to take equity exposure and know least about equities due to low cost and exposure to broad market. An exposure to actively managed sector fund may destroy wealth if the timing of entry and exit goes awry.
Taxation
Investment products, that help you attain your goals, should be tax efficient. An investment in a bank FD is less tax efficient compared to an FMP from a mutual fund. Equity mutual funds attract NIL long term capital gains if you hold the units for more than one year. Being aware of the tax laws pays off as the retirement kitty size depends on how you escape the taxman's clutches legally.
Investments and retirement planning is an expertise that everybody may not have. There is nothing wrong to seek a fee-based advice. Only thing to watch out for is the cost of the advice. If the fee paid is bringing you desired results, then never hesitate to pay such an advisor. But never pay money to loose money.
Instead of paying money managers a flat fee, offer them a profit share over a pre-decided hurdle rate. Of course, in such circumstances, please ensure that the fund manager is not taking excessive risks with the sole intention of maximizing profits.
Retiring early
Due to booming economy, there is a craze for retiring early. Individuals intend to work hard till the age of 50 and accumulate a 'fat' retirement kitty for their golden years by saving regularly.
But before you opt for retirement, think twice. See if you have really planned to ensure that golden years would remain golden. How good is the idea of spending 50 years of retired life? Are you prepared, both financially and mentally? Instead, explore alternate careers at no fresh capital commitments. A busy bee always leads a healthy life.
If a large number of senior citizens are not in a position to spend their golden years by going to cruises or doing things they always wanted to do, it's because they have fallen prey to some common retirement pitfalls.
For those who are still some years away from retirement, there is still an opportunity to plan so that the post-retirement years are something to look forward to.
My kids will take care of me
Most Indians think of life merely in terms of fulfiling responsibilities. The common assumption is that looking after retired parents is the responsibility of children. Such beliefs are, however, history with the advent of the nuclear family system. Even if you are are blessed with caring son or daughter, longevity will make it difficult to meet parental responsibilities. Imagine a situation where a 95-year-old is dependent on a 65-year-old.
Not knowing how much to save/invest
Inflation is a silent and an extremely efficient thief. It robs a sizeable value of your savings over a period of time. If we continue to have 6% inflation, items that are available for Rs 100 today will cost Rs 768 after 35 years. There are calculators available on many websites, which you can use to ascertain the price you will pay for your 'dream' lifestyle at the time of retirement.
Not now syndrome
If one prefers to spend for short-term consumption goals over the long-term retirement goals, it costs dear. Start as early as you can. Rs 100, if allowed to earn 15% compounded interest annually for 35 years, would grow up to Rs 13,317. But, the same amount would bring a sum of Rs 3,291 if you invest it for 25 years. The difference of 10 years makes a big difference.
Using retirement funds prematurely
Jumping jobs is the order of the day. Many individuals prefer to withdraw the money they have accumulated in provident fund. This hurts the retirement corpus building. The provident fund should either be transferred and if it is withdrawn, it should be invested in PPF or some other long-term conservative investment product such as pension fund.
Asset allocation
These two words define the difference between retiring rich and retiring poor. Getting into the right asset at the right time matters a lot. This is not an easy task. Hence, it makes sense to stick to a predefined asset allocation depending on the risk profile you have and the financial goals you intend to achieve.
Portfolio rebalancing, taking into account the asset allocation at regular intervals, is a must for attaining financial success. Instead of choosing something that is fashionable, it makes sense to be with plain vanilla products. Index funds are the best options for those who intend to take equity exposure and know least about equities due to low cost and exposure to broad market. An exposure to actively managed sector fund may destroy wealth if the timing of entry and exit goes awry.
Taxation
Investment products, that help you attain your goals, should be tax efficient. An investment in a bank FD is less tax efficient compared to an FMP from a mutual fund. Equity mutual funds attract NIL long term capital gains if you hold the units for more than one year. Being aware of the tax laws pays off as the retirement kitty size depends on how you escape the taxman's clutches legally.
Investments and retirement planning is an expertise that everybody may not have. There is nothing wrong to seek a fee-based advice. Only thing to watch out for is the cost of the advice. If the fee paid is bringing you desired results, then never hesitate to pay such an advisor. But never pay money to loose money.
Instead of paying money managers a flat fee, offer them a profit share over a pre-decided hurdle rate. Of course, in such circumstances, please ensure that the fund manager is not taking excessive risks with the sole intention of maximizing profits.
Retiring early
Due to booming economy, there is a craze for retiring early. Individuals intend to work hard till the age of 50 and accumulate a 'fat' retirement kitty for their golden years by saving regularly.
But before you opt for retirement, think twice. See if you have really planned to ensure that golden years would remain golden. How good is the idea of spending 50 years of retired life? Are you prepared, both financially and mentally? Instead, explore alternate careers at no fresh capital commitments. A busy bee always leads a healthy life.
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