Mistakes to avoid while making your retirement plan

3 MinsAug 27, 2020

Retirement seems like a long time away. So why think about it now? This seems to be the tendency of most of us in the prime of our careers. While retirement planning itself is a long-drawn exercise, here are few quick tips on retirement mistakes to avoid:


1)    Having no plan: Failing to plan is planning to fail. Chart out an action plan with your Relationship Manager or advisor based on proven financial principles to help you get to your retirement goal. Do a periodic review on asset allocation and investment performance as a follow-up. 

2)    Beginning late in life: Studies show that the more time you give your investments to grow, bigger the corpus at the end of the period. Begin early for the ‘money plant’ to grow to its fullest potential. Remember 2 key things – (a) power of compounding can work wonders and (b) compounding returns are best experienced at the ‘back end’ of the term, i.e., later part of the time invested for.

Let us take an example, Raj started investing Rs.5000 every month at the age of 30 and Kishore started investing Rs. 5000 per month at the age of 35. How much retirement corpus will they have at the age of 60 years at 12% average annual return? Raj’s investment of Rs. 18 lakh will grow to Rs. 1.75 crore while Kishore’s investment of Rs. 15 lakh will grow to Rs. 94 lakh only. The early start helped Raj build a corpus of Rs. 81 lakh more than Kishore.

[Also Read: Six Reasons to Focus on Your Retirement Planning Today]

3)    Putting all eggs in one basket: Haven’t we all been guilty of not diversifying now and then? Asset Allocation or spreading your portfolio across uncorrelated assets like Equities (for growth), Debt (for capital preservation) and Gold (for diversification), amongst others, is the most important part of investing and wealth creation. It helps you achieve positive returns/preserve capital on the portfolio even when one asset class gives negative returns, besides reducing the risk at a portfolio level. It also helps reduce risk at the portfolio level

4)    Underestimating the cost and length of retirement: Inflation over long time periods erodes the value of money and hence your retirement corpus. Longevity can also play havoc especially at the far end of the period if one has not saved enough. Save in a manner such that it suffices for at least 25 to 30 years. 

5)    Not buying (enough) insurance: What better time than present to understand the value of insurance. While you may be covered during your working career, it is critical to cover yourself with life and health insurance post retirement too, else you carry the risk of your savings getting wiped out/falling drastically in case of any unfortunate eventuality. Buy insurance cover early and continue with it beyond your working years.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.