Not starting early is probably the worst thing you can do, but other missteps can also derail your planning.
IGNORING HEALTH INSURANCE..
Health care is one of the most important expenses of a retiree. If you do not buy health insurance in your 40s or / 50s, you are heading for a financial disaster. After 40, your health starts deteriorating and no health insurance company will cover you if you develop a medical condition.
Even if a company agrees, the premium will be quite high. Buy insurance in your 40s, so that after you retire,it takes care of your healthcare costs.
NOT OPTING FOR EPF OR OTHER RETIRAL BENEFITS..
Not many investors realise that the Employees Provident Fund (EPF) is gods gift to them. The 12 % of their basic salary that flows into the EPF every month & a matching contribution by their employer can build up a sizeable nest egg.
Many employees actually hate this deduction because it pares down their take-home salary. Therefore, many like Kanpur-based Rajeev Bansal opt out of the EPF. This is a mistake because the fund acts as a compulsory saving.
Used properly,it can build a huge nest egg for you. The 8.5 % interest earned on the EPF can help a person with a basic salary of Rs. 25,000 a month accumulate a gargantuan Rs. 1.65 crore in 35 years. The calculation assumes he started working at 25 at a basic salary of Rs. 25,000.
DIPPING INTO RETIREMENT SAVINGS PREMATURELY
Every time an individual changes jobs, his / her retirement plan is faced with a grave risk. This is because he has the option to withdraw his Provident Fund (PF) at that time or transfer it to an account with the new employer. If he withdraws the amount, it is usually blown up in discretionary spending & his retirement planning is back to square one.
Investors can also withdraw the PF amount if they need the money for specific purposes,including their childrens marriage, buying or / building a house,or in medical emergencies. However, dipping into the corpus to meet other goals can hit your retirement planning.Your money is unable to gain from the power of compounding.
CONCENTRATING ON A SINGLE OPTION
The benefits of diversification dont need to be explained. Your retirement plan should also be diversified, not only across asset classes. but also across options. Do not put all your eggs in the EPF basket. Though equities are risky, you still need a small 10% to 15 % exposure to this asset class to be able to beat inflation in the long term. Debt is safe, but locking up all your funds in a fixed deposit will hamper liquidity. The NPS is lowcost, but you wont be allowed to withdraw.
Invest in a mix of mutual funds, pension plans, bank deposits & bonds. A diversified portfolio will also help you create multiple streams of income when you retire.
RUSHING INTO RETIREMENT..
Imagine a life when every day is a Saturday or / at least it feels that way. But, retirement can quickly become painful as you struggle to keep yourself busy. Experts say the ennui of retirement can deal a psychological blow to someone who has led a hectic working life.
So, do not rush into retirement unless you have planned what to do when you are home 24 x 7. Nurture your hobbies & travel a lot. Taking up a part-time assignment is a good idea even if you dont need money.
From ET WEALTH
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