In Your Thirties? Avoid These Common Retirement Planning Mistakes!

Are you in your thirties right now? Your retirement may seem a long way away today; but this is really the best time to start planning for it – if you haven’t already. A multitude of factors are increasing the need for maintaining structured, disciplined and committed action towards your retirement portfolio. Here are four mistakes to avoid on your journey.

Planning only for your Child’s Education

There’s nothing wrong with aspiring for a great education for your child, but it would be a mistake to shovel away every last saved penny towards your child’s education, without paying heed to your own retirement. Remember, you’ll be able to avail education loans for your child’s education, but not for your own retirement. The interest on these loans is fully tax deductible too. Also, would you really like to become a financial burden on your kids at a time that they’re just finding their feet in their careers?

Being a Low Risk Taker

When it comes to Retirement Planning, don’t think twice - just divert your regular retirement savings (such as Mutual Fund SIP’s) into an aggressive investment such as a mid-cap-oriented equity fund anyhow. When it comes to Retirement Planning, high risk/ high return Mutual Funds Sahi Hai! If you allow your individual risk tolerance to dictate your choice of retirement savings avenue, you could end up retiring with lakhs of rupees – if not crores – less. Be careful, as a 5-6% difference in annualised returns compounded over three decades, is a lot more than you think.

Choosing the NPS over Mutual Funds

Sure – the NPS is a low-cost investment, and represents a massive improvement over traditional endowment life insurance plans and fixed deposits; but they need more reforms before they can become your one-point retirement solution. For one, the NPS bars you from taking more than a 75% exposure to equities. In addition, your equity allocation is mandatorily slashed by 4% every year after your 35^th birthday, and this can hamper your long-term returns. While the NPS is definitely worth considering, make sure that the lion’s share of your retirement savings still flows into Mutual Funds.

Getting stuck into a Pension Plan

Buying a pension ULIP is an avoidable step on your retirement planning journey. After all, when your pension ULIP matures, you’re permitted to withdraw just 1/3^rd of the funds tax free under section 10(10D) of the income tax act. The remainder, you’ll need to put away in an annuity that’ll give you a post-tax annual yield of just 5-6%, depending upon your tax bracket, and the option you choose. Just stick with regular Mutual Funds or bluechip stocks during the accumulation phase.