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Entering retirement with home loans, personal loans or credit card dues can drain savings quickly.
Without a plan for how much to draw each year, savings can deplete faster than expected.
Retirement is often pictured as a peaceful stage of life. Yet for many, that dream meets reality when savings fall short, medical expenses drain their funds, or tied-up investments leave them struggling for cash.
What seems like small financial missteps in the beginning can snowball into major setbacks over two decades of retirement. The good news? Most of these pitfalls are avoidable with foresight and planning. Let’s look at the common mistakes that can derail retirement finances and how to prevent them.
1. Skipping A Withdrawal Strategy
Without a plan for how much to draw each year, savings can deplete faster than expected. Setting a sustainable withdrawal rate helps ensure money lasts through retirement while leaving a cushion for rising healthcare costs and emergencies. In the initial years, exploring part-time income or delaying withdrawals can allow investments to keep compounding.
2. Locking Everything Into Annuities
While annuities provide steady income, they lack flexibility. Once purchased, payouts remain fixed, even as inflation climbs or medical needs grow. Depending solely on annuities can also tie up funds, leaving little room for emergencies. Instead, combine annuities for essential expenses with liquid, growth-oriented options like debt funds or senior citizen savings schemes.
3. Avoiding Equity Altogether
Many retired people shy away from stocks due to market risk. Yet, avoiding equities completely exposes savings to inflation erosion. Even a modest equity allocation can provide long-term growth. Holding a portion in stocks while keeping several years of expenses in low-risk assets ensures both stability and appreciation.
4. Relying Only on Cash for Medical Costs
Healthcare inflation rises sharply in retirement, and one hospitalisation can wipe out years of savings. Depending solely on a cash buffer without adequate health insurance is risky. A combination of a standard policy, a top-up cover, and some reserves for out-of-pocket costs provides stronger protection.
5. Neglecting Estate Planning
Overlooking estate planning can create confusion and disputes among heirs. Without a will, nominations and consolidated records, asset transfer becomes messy and time-consuming. Preparing a clear estate plan ensures a smooth transition of wealth, reduces legal hassles and protects loved ones from unnecessary stress.
6. Tying Up Wealth in Immovable Property
Owning a home is reassuring, but concentrating too much wealth in real estate can be problematic. Property is not easily converted into cash when urgent needs arise and upkeep costs add to the burden. A balanced approach, such as exploring reverse mortgages or diversifying into more liquid assets, can provide both security and financial flexibility.
7. Overlooking Tax Efficiency In Investments
Fixed deposits may feel safe, but interest is taxed annually, often reducing net returns significantly. This steady outflow chips away at retirement savings. Alternatives like tax-efficient bonds or debt instruments with favourable long-term capital gains treatment can help retain more income post-tax, strengthening the retirement corpus.
8. Carrying Debt Into Retirement
Entering retirement with home loans, personal loans or credit card dues can drain savings quickly. Without a regular income, repayments force retirees to dip into their nest egg, leading to financial strain. Clearing debts at least partially before retirement reduces obligations and allows savings to focus solely on living expenses and future needs.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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