Two decades away from retirement, when I was asked to save for my retirement goal, I was sceptical about it. All my life, I was ready to invest more money to save tax. I never gave serious thought to retirement, which seemed to be a far off agenda. Saving for the child’s future seemed a much more practical and high priority goal at that point.
We human beings never like to think of the obvious milestones in life. At some point in life, I will not be still earning! My activity level will slow down. My health will demand more support than ever! And last but not the least, this phase may continue for decades after decades! I will need to support myself, for how long, who knows!
There are two risks in life – dying too early and living too long.
We make a few common mistakes to encounter the second one!
1) We ignore the possibility that our post-retirement life often stretches to the same duration as our earning life. Life expectancy has increased with the advancement of medical science. If we start saving for retirement at the age of 30 and retire at 60, we may need to take care of our expenses till 90. So 30 years of earnings may require us to take care of our expenses over 60 years.
2) We often ignore the power of compounding. The sooner we start saving for retirement, the better. The value of money grows with time. So what we save today, in simple words, appreciates much more in the long run than what we will save after 10 years! The smaller, but regular savings in the long term also give us the advantage of value averaging.
3) When there is an employer specified age to retire, we value it. But, we often miss out on our age of retirement from self-employment. We may still earn something when we age but should we bank on that extra mile? It’s a matter of organizing our finances now, to buy mental peace for the time when our activity level biologically will dropdown. Our human body will not know whether we are employed or self-employed!
4) We often forget a factor called inflation. We live in a country with a growing economy. Inflation will remain positive here during our lifetime. So, if an amount seems sufficient for our monthly expenditure today, it will not be the same after 10 years. Money will lose its purchasing power with time. We have to constantly encounter the effect of inflation. We will need an increment during our retired life too and we have to work on this factor.
5) Our portrait of retired life will not be the same as that of our great grandparents. It will be drastically different. They never had to plan for their retirement. They supported joint families financially during their life and the family, in turn, supported them during their old age. Our life or lifestyle is a product of another planet. We do not have family doctors who will treat us. Our life will depend upon the latest technology available at the hospitals and that will involve money. Our grandfathers’ Rolex watches are now replaced with our Apple watches and our grandmothers’ heavy gold chains have switched their places with our handheld iPhones. The bottom line – they created assets while we live on liabilities. If we ignore lifestyle inflation, it will be another great mistake.
Wipe the mist from the windscreen and see the road ahead. Visibility is not poor. It’s all about foresight. Uncertainty is the most certain thing in life. We encounter it during retirement planning.
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– Aditi Nundy