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5 Biggest Mistakes In Pension - Retirement Planning

Written by Viplav Majumdar on Oct. 19th 2019

ALL THAT YOU WERE TOLD RIGHT? WRONG!

FACTS REVEALED BY FINANCIAL PLANNER AFTER

REPORT BASED ON STUDY OF 7000+ FAMILIES IN 15 YEARS

5 Biggest common mistakes that most of us make since start of career, ultimately that stress, extra working years, in some cases financial crisis after age 45 and in majority of cases it results to compromises after 60. It is a fact for people working without old pension for private sector and Government. After year 2004, the old pension has been discontinued, it had a benefit of increase of pension with DA (with inflation). This feature of the pension showed that life after retirement is comfortable.

Sadly, this is history, now the reality is different. This report has been prepared based on research on more than 5000 families from different segments of society and interview with several investment advisors, financial planners, retirement planners and bankers. In India most of us have been told to study and build career, since most of the people were protected with old pension and mostly people were in joint family system, more people were not bothered for life after retirement.

When it comes to life after retirement, the most favourite product is pension plans and mutual funds. Based on our research we have found 5 quite common mistakes among people in planning pension.
 

Mistake 1: Plan Retirement at 60, Not Planning Required Income For 30 – 40 Years After Age 45

Majority of families plan their retirement at the age of sixty. The brutal fact in today’s world is that most of the people should be ready with alternate income by the age of 45. We found in last 15 years that there is NO READY MADE INVESTMENT WHICH CAN GIVE YOU LIFE LONG REQUIRED INCOME. You name any investment available for pension in India, you will find that it can’t support you. Later in this report we shall discuss some of the popular investments for pension.

PLANNING REQUIRED MONTHLY INCOME IS THE MOST IMPORTANT PART OF RETIREMENT.

Proper calculation of expected expenses is required and on the other hand you need income, that should grow with cost of living, it grows regularly. 
To be self sufficient after retirement it is of utmost importance that you have robust sources of income for monthly expenses for 30 – 40 years.
 

Mistake 2: Investing Casually

Most of the individuals said that they started career and invested just on the advice of seniors in office, father, elder brother, friends, or relatives. They had monthly savings at initial stage of their career and they didn’t have any use of the funds. All of them said, they invested casually by just thinking what is wrong in any kind of investment.
It is a big mistake, the savings you have is yours it should be invested for your benefits. The investment which that is invested for a longer period gives better return over the period. Most of the popular investments give you lower than the deposit (in purchasing power terms). They give lower returns than inflation.
 
So, if your Rupee hundred note can buy 1 kilogram of pulse today, inflation is 7% and you get return of 3%, that means you will get Rs. 103 after a year and the cost of 1 kg pulse would be Rs. 107. How will you buy 1 kg with your money?
 
What will be the loss in 20 years? The actual amount in bank grows at 6% and inflation at 7%, so it is nearly 13% loss on maturity value (in purchasing power terms). On the other hand, this same investment can change entire scenario, you may retire in just 10 – 15 working years.
 
Always invest after comparison of maturity with inflation. In the e-book How To Replace Salary With Alternate Income In 1 – 5 Years’.
 
When it comes to pension it is to be planned very professionally, as the time when you depend solely on investments after retirement you do not have capacity to earn. It is the investment only that will look after your expenses for next 30 – 40 years.

Mistake 3: Investment in Insurance Policy On Obligation Or Marketing

In our research we found that majority of people started investment in their life with life insurance policies, thy bought it on obligation from some known people. Again obligation was from your side only???

Remember insurance policies are for protection not for investment. Investment means higher returns than inflation. Unfortunately, in start of career you have limited savings and if it goes for obligation, how the assets of your life can be good? Investment and insurance should be kept separately.

In an Endowment policy of 20 years, normally instead of getting at least 4 times of the deposit you lose 30% at maturity in purchasing power terms.

Mistake 4: Delay in Planning For Retirement When You Have Practically Just 15 – 20 Working Years With Dignity

Almost 90% of 5000 families said that initially they took retirement lightly, unless their first uncomfortable side stare of boss. In job market you have regular competition form inside and out side of your organisation. Average age of employees is less. More and more people start their own venture or leave organisation gracefully to protect self respect.

The delay in planning for retirement increases the probability of self employment for longer period. What is the right age for retirement planning, it is the day you feel or become aware. It is one of the biggest requirement of life.

A normal person requires crores of Rupees to retire as per calculators, freely available over internet. The most challenging part is when some one loses initial years casually and later one loses employment. So plan your income now.

Mistake 5: Buying Pension Plan For Fixed Income For 30 – 40 Years While Expenses Grow

No pension plan can support you for sufficient pension for monthly budget. Buying pension plan is one of the biggest fatal mistakes. You may buy pension plan at the cost of your retirement.

It gives you fixed pension, the first pension and the pension after 25 years would be fixed, the same. Moreover if you want to plan your life with the income from pension, you will have to pay all your monthly income for investment in pension plan.
 
Your expenses grow regularly, what was your income and monthly expenses 10 years ago and what is your income and expenses now. In a few years families feel the punch. They are forced to compromise with their lifestyle.
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About Author: Viplav Majumdar

Creator of System - "4 Hour Income Plan For Life" Planned For More than 7000 + Families Trained more than 200 Certified Financial Planners