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Common retirement fund management mistakes

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Common Retirement Investment Mistakes to Avoid
February 16, 2024

To sail through retirement, you need a smooth flow of money that would not just take care of your cost of living but your life goals too. And that’s not very difficult to achieve if you have the right investment strategy in place. But to err is human and retirement plans are no exception to this rule. People aiming to make or execute retirement plans in India often tend to overlook certain situations and fall prey to some common mistakes. Here’s a list to alert you so that the same traps can be avoided.

Not starting early: Often, people start planning their retirement when they are close to it. As a result, it gets tough to save or invest bigger chunks of money to ensure a retirement fund. Instead, if the start had been early, the same corpus could have been built without burdening the pocket. Creating a Rs 10-crore corpus would require much lesser monthly savings if you start at 20 than at 40.

Not focusing on long-term: When it comes to retirement planning, it’s important to focus on long-term investments and returns. Ideally, the returns from your investment should suffice as your monthly retirement income and the savings should remain intact. However, many think the other way and rely on savings only. To estimate the monthly retirement income and the investment needed to achieve it, the retirement calculator can be helpful.  

Withdrawing EPF early: The longer your money stays in the Employee Provident Fund (EPF), the bigger your retirement savings, thus securing your financial future. In many cases, people tend to withdraw it early for non-retirement expenditures like buying a property or to fund children’s higher studies. It would indeed be wiser to rely on home loans or education loans and personal savings instead.

Not relying on PPF: Offering compound interest and tax benefits on both investment and withdrawal, the Public Provident Fund can be a coveted tool to accumulate retirement savings. Since it allows saving up to Rs 1.5 lakh a year, you can not only grow your corpus to Rs 40.68 lakh in just 15 years, but also benefit as the entire savings will be tax-free under section 80C of the Income Tax Act, 19611. This is crucial because you need to pay taxes on your retirement income. However, a lot of people ignore the benefits and save less under the PPF.

Ignoring inflation: Another major mistake is not taking inflation into account while planning for your retirement. You might be saving a big amount, compared to your current income and expenses. But would that be sufficient for the future? Considering an average annual inflation at 7%, Rs 1 lakh will have a purchasing power of just about Rs 13,000 in 30 years. So, it’s ideal to estimate the retirement corpus by incorporating the inflation rates.

Not trusting health insurance: Healthcare costs in India have been on a continuous rise over the past few years. With age, you will be more prone to serious diseases and might need to incur huge treatment costs. Health insurance can be a wise choice here, taking care of your expenses. However, most people still neglect its necessity and suffer.

Not diversifying the investment portfolio: You might look for high returns from your investments. But with that, come high risks too. To balance them and offset losses if any, it’s immensely important to have a diversified portfolio. More so, when you are looking to ensure a financially stable retirement. It’s a primary step which people often ignore.

Faulty asset allocation: Asset allocation should be based on your age, financial goals and risk appetite. You might need a considerable amount of money for your retirement fund and hence high return investments can seem alluring. Often, people step into the trap without considering their risk appetite and end up losing a chunk of money. The retirement strategy needs to align with your financial needs and risk appetite to bring the best results.

Every step counts in retirement planning. Knowing the wrong ones to avoid, you can move ahead smartly!


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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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