Top 3 mistakes people make in their retirement corpus calculations
Imagine you are 50 years old. And really looking forward to your retirement in next 5 to 10 years. You have been a hard worker throughout your life and have saved a lot of money in your bank accounts, maybe fixed deposits and some proportion of your funds in mutual funds too. Maybe you have a set figure in your mind (for example INR 3 crores) which you think will be enough to take care of your retirement phase. How do you know that number is correct? For most people out there, who have not worked with a financial planner to plan their retirement journey or who have not used the fancy retirement calculators on the financial websites, the number that they have in mind is THE NUMBER that they are chasing all their life because they feel that will be enough for them. The worst thing that can happen is that the number is wrong due to lack of ignorance (not due to lack of commitment). This piece of writing is dedicated to all those people who are a few years away from their retirement and can still plan an amazing and fulfilling journey ahead.
These are the top 3 mistakes people make in their retirement corpus calculations:
1) Not starting early. Most people are under the impression that their provident fund and pension schemes are enough to take care of them in their retirement phase and do not think about the retirement planning early enough. They have this realization sometime in their 40s that they should have started a little earlier to build their corpus.
2) Underestimating the size of your post-retirement corpus. Like I said in the example above, we don’t know whether that INR 3 crores number is correct or not. Most people underestimate the size of their post-retirement corpus. I will break this down further into 3 areas:
A) They do not factor in the ever-increasing inflation rates. They know the prices for all products and services are slowly and surely going up, but for some strange reason, they do not factor this in their calculations in a concrete manner. They do a rough mental math, something like this: my current expenses are INR 50,000 per month. I will calculate my retirement corpus estimating INR 100,000 per month. Again, the question: how does one know INR 100,000 is enough. The rule of thumb should be that on average the prices of everything will double every 8 years (looking at historical inflation rates in India)
B) They do not factor in the rising healthcare costs. The quality of healthcare services has increased manifold and so have the costs, which will only go up with one’s age. When these costs rise, it has a direct impact on one’s retirement corpus. One more classic mistake associated with this factor is people not buying adequate health insurance cover.
C) Increasing taxes. Yes, senior citizens do get some concessions but to be conservative, it is good to assume that they can go up in the future.
3) Not considering longer life spans. What if you are retiring at 60 and have a corpus for next 20 years but you outlive your retirement corpus and are alive till 90 years. The improvement in healthcare technologies and medical facilities will mean that people will have longer lifespans from hereon.
If you are currently doing your retirement corpus calculations, request you to please factor in these considerations to enjoy a hassle free and peaceful retirement.
