While the retirement period marks a new beginning after 60, it also implies the onset of a big financial change in a retiree’s life. This change is about complete reliance on retirement fund and managing the expenses – both essential and aspirational in the absence of a regular income stream. The retirement fund at disposal is typically huge, running into lakhs or crores and it is highly likely that a retiree has never managed such an enormous amount before. The possibility of mistakes is high in the absence of a proper plan to manage the retirement corpus. Here are a few common mistakes retirees make with their hard-earned money and which can be avoided:
Relying on agents for free advice
After 60, retirees suddenly take a keen interest in various investment products to explore the opportunity of maximising income on the retirement corpus. It is common for senior citizens to get investment advice in their social circle or from attending seminars. With a lot of free time at disposal or not being digital savvy, retirees also frequent banks for routine transactions. They become easy baits for agents, relationship managers who sell them products which are unsuitable for their retired financial life. It is not just the money which gets locked in for a long term but also the unnecessary risk that retirees take on which may not be suitable to their financial situation. Retirees should not rely on such free financial advice which comes from all corners and can actually prove very costly in the long run.
Funding Children’s Goals
This is a typical mistake which parents make not just after retirement but in their working years, i.e., the accumulation stage of retirement fund. Education is the best gift that a parent wants to provide his child but usually fails to plan adequately for such a big expense. They are then compelled to dip into their retirement fund like EPF and PPF for funding. This leads to a lower retirement fund which in turn means lower potential income. Parents are also generous in utilising their retirement savings after 60 for their well settled working children. The financial aid could be to help them buy their own house property or in starting their own business venture. What retirees need to realise that loans can be availed by their children for these financial goals but there is no such loan for retirement. Financial dependence on children Is the last thing a parent would want to lead a dignified life after retirement. Retirement money thus should be only used for their own needs and not on children’s goals.
Not investing in Equities
The main concern of every retiree besides generating a regular income stream is safety of capital. A retiree would usually gravitate towards safer debt options to grow his retirement corpus such as bank deposit, annuities, post office saving schemes, etc. The fresh interest income from these fixed income products is not enough to beat inflation. Also, each withdrawal reduces the income generating capacity of the retirement fund. The retirement fund is a finite amount and inflation is likely to eat into it and exhaust his savings faster than a retiree could imagine. A retiree typically shuns equities after 60 because of their volatile nature. But it is imperative for a retiree to take some exposure to equities to beat inflation. While a portion of the retirement savings can be invested in fixed income for sustenance, the balance can be invested in equities to allow it to grow in value faster than inflation over the long term.
Not spending enough
Retirement is the time when the corpus which is built painstakingly over the working years should be spent. For many retirees, the transition from saving to spending is not easy. Many retirees experience financial anxiety at some point or the other and the thought that they might outlive their savings does cross their mind. This feeling of financial insecurity prevents them from enjoying their retirement fund even if they have a sizeable nest egg to live comfortably. Retirees should need to demarcate between the thin line of frugality and being a miser. The focus to preserve wealth in retirement should not become an obsession about tracking every penny. Besides the expenses incurred on daily sustenance and medical expenses, retirees should have some portion of discretionary funds in their retirement budget to regularly spend on leisure activities that they enjoy and bring happiness.
To conclude, retirement is long journey spanning 20-25 years, may be even more because of the increased life expectancy. Managing the retirement corpus and sustaining it till life time is a huge task. Mistakes as mentioned are likely, some having the potential to endanger the financial security of a retiree. It is prudent to consult a professional advisor who will provide guidance on managing the retirement fund through a proper investment strategy.