What Are The Myths Holding You Back From Retirement Planning?
Dec 12, 2018

Author: Aditi Murkute

(Image source:aag.com)

One evening over a cup of tea, my parents were reminiscing about their childhood. My mother shared that she and her siblings never purchased a railway ticket to visit any place across India because my grandfather was employed with the Indian Railways.

Being a government employee, he was entitled to many perks such as railway quarters to stay during the term of employment, free train travel for the family around India, subsidised medical services, and pension on retirement.

I asked her, ‘Did he have a retirement plan?’

She explained my grandfather did not plan for his retirement and believed that his children would look after him and the meagre pension would be sufficient to meet his basic day-to-day expenses

‘How did he manage when there is inflation?’, I asked.

‘Did he not aspire to own a flat, insurance cover for medical purposes, or leave a legacy behind?’

Her answer was a big ‘NO’.

What stunned me was that my grandfather was a shrewd person, but he made a grave mistake by not planning for retirement. And that explains why he could neither receive the best of medical treatment during his prolonged illness nor have his own place to stay during retirement.

This kept me up all night thinking: Was it only him or were there other people in the similar situation? How could people not think of planning for their retirement during the working years?

Retirement planning is one of life’s events that you must start as early as possible. With a goal-based financial plan, you will not have to worry about your retirement.

[Read: Are You Ready With Your Financial Goal Worksheet?]

After meeting several people, I realised that they have myths that prevent them from goal-based retirement planning. Let’s look at debunking these myths.

  1. I will be living for a handful of years only:

    A common misconception is that, one will live for a few years after retirement. The reality is that due to advancements in medical facilities and higher awareness about health, life expectancy has increased. As reported by Human Development Index Report, United Nations Development Program (UNDP) India and Sample Registration Survey (SRS), based on life table 2010-14; the Average Life Expectancy of Indians has increased beyond 69 years and has increased by more than 10 years in the past 20 years. 

    During the golden years, your income stops but expenses continue. The years from when you start your retirement till demise are unpredictable. However, financially preparing for this time of our lives is imperative for our survival.

    Our investments/savings act as a steady source of income during our retirement phase. So, if you are going to have a long-retired life, you should live comfortably. And for that, you need to plan prudently during your working years.

    [Read: Thinking Of A Blissful Retirement? Here’s Why You Can’t Ignore Investing in Mutual Funds]

    Hence, save and invest your hard-earned money in mutual funds for an independent financial future, your envisioned financial goals such as buying that dream car, house, and the future of your children, and most importantly your retirement.

    But before you invest, consider the following aspects:

    • Your risk profile

    • Your investment objectives

    • Your financial goals

    • Your time horizon to achieve them

    • Your personalised asset allocation based on the above factors

  2. Savings, FDs, and pension will be sufficient

    I have heard this on several occasions: ‘My savings held in the bank in form of FDs earns me an interest and the pension I receive will be enough for my livelihood.

    As a matter of fact, it will evaporate before you take your last breath.

    Considering the current interest rate of 7%, if you invest Rs 5 lakh in an FD for eight years you will receive approximately Rs 8,49,505 lakh at the end of the term. It will barely last 3-4 years because it cannot counter the rate of inflation.

    Considering the rising expenses of fuel, food, clothing, and other lifestyle expenses, relying solely on conservative instruments like bank FDs is unwise. Consider alternate investment avenues because:

    • The returns or interest earned on FD is insignificant to grow wealth; and

    • The Interest earned is taxable as per the tax slab rates

    Perhaps, you could invest in direct plans regularly, besides allocating some portion in a bank FD, which can help grow your wealth.

    [Read: Can Fixed Deposits Help You Retire Comfortably?]

  3. Expenses will be less

    When retirement starts, there is a loss of the steady income and to manage daily expenditure is challenging. In this ageing process, we suffer from many health-related issues that incur additional costs besides our day-to-day necessities. Therefore, we need to build a retirement corpus that will ensure smooth living and fund our medical treatments as well.

    To plan for long-term financial goals, including retirement and to beat the rising inflation, investing in equity mutual funds as per your goals will fetch you better returns. Despite the short-term volatility in equity fund investment, over a longer time period it works in your favour.

  4. I'll do it Later

    One of the most harmful retirement myths is that you always have time to start planning later. The probable reasons for your procrastination could be:

    • Too young to plan for it

    • Want an easy way to plan for retirement

    • Need more funds

    • Pay off debt first

    • Don’t have time to plan

    Whatever the case may be, putting off retirement planning until later robs you of the time to grow your wealth under the influence of the power of compounding.

    'Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.'- Albert Einstein

    The sooner you sow the seeds for a blissful retirement, bigger the fruit of wealth will grow; delaying it will leave you cutting down on your bucket list in the future.

    As retirement seems to be many years ahead, we tend to forget that what we do today determines how smoothly we will lead our retired life, at least financially.

    Moral of the story: It pays to start early, delaying this can cost you dearly.

  5. My children/spouse will take care of me

    In times of urbanisation and fast-paced life, people work away from their parental home and are being independent. With changing dynamics, the social system of joint families has transformed into the new trend of nuclear families- the parents staying away from their kids and/or staying by themselves with both partners working. It is unreasonable to expect support in the future from your children.

    As far as relying on a spouse is concerned, there could be an untimely death or a divorce.

    Hence, it’s prudent to plan for your golden years now; and perhaps as a matter of esteem, you may want to continue to be financially independent.

Wish I could tell my grandfather earlier, probably he too would have enjoyed his retirement in luxury. It’s already too late for that, but I hope to now help others to make up their mind and plan for their retirement sooner.

Well if you don’t know how to begin, you can reach out to PersonalFN's Financial Guardian on 022-61361200 or write to info@personalfn.com.You may also fill in this form and our experienced financial planners will reach out to you.

PersonalFN is a SEBI registered investment advisor. We will be happy to help you.

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