Invest in Credit Risk Mutual Fund or not?

Retirement always looks far-off and therefore we keep delaying it. We panic when we are near it realising how much time we lost in between. It is therefore advisable to start thinking about your retirement from the beginning and avoid making mistakes on your journey towards ensuring comfortable sunset years.

Here are a few common pitfalls that we have identified when it comes to saving for retirement.

Ignoring Inflation

Retirement is a long term goal, therefore, it is very important to understand the impact of inflation on the money that you plan to invest for your retirement goals.

Inflation reduces the purchasing power of your money over the long-term period. Assuming the rate of inflation of 7%, Rs 1,00,000 today will be worth just Rs 13,000 after 30 years. It means you will be able to purchase less with the same amount of money in future.

So, if the monthly expenditure of a 30-year-old is Rs1 lakh, then assuming the inflation rate of 7% one needs to have Rs 3.80 lakh after 30 years. Having said that you need to plan your retirement after taking into account the impact of inflation on your savings.

This also helps you to invest wisely in the right assets, which can give you the best return beating the inflation rate.

Starting late

One of the biggest mistakes is to keep delaying it and starting saving for it towards the end of your working life. By starting early your money can grow at a faster rate reaping the benefits of compounding. For example, by shelling out Rs 5,000 per month at the age of 20 you can accumulate Rs 5.88 crore by your retirement at an assumed rate of 12%. Similarly, if you start at the age of 30 the corpus at 60 years will be around Rs 1.75 crore. The 10 years of extra compounding can grow your portfolio by multiple times.

Not having an emergency fund

You should have an emergency fund that can sustain you for at least six months in case of any adverse situation. There are many people who lost their jobs or had to take pay cuts during the first wave of Covid-19. Some savings can give you much-needed cushion while you sit down and chart out your future plans. The absence of liquidity can make one impulsive, adding to the already chaotic phase of life.

Not having health insurance coverage

In the absence of health insurance, you might need to liquidate your investments that you had saved for rainy days. Though most of the Covid-19 cases are getting treated at home, but at times co-morbidities may lead to hospitalisation for which it advisable to have a health insurance policy in advance. Though there are short-term Covid-specific policies available in the market, it is advisable to go for a comprehensive health insurance plan which not only covers Covid-19, but all kinds of hospitalisation, giving you much wider coverage.

Not having a term insurance plan

Having term insurance gives one mental peace during these unprecedented times as the policy offers the family a lumpsum amount on the death of the insured. Though emotional loss can never be filled, financial security can certainly help the family in sailing through the bad times. Buy a term plan of at least 10-15 times your annual salary so that the lump sum amount can take care of your family needs in case of any untoward incident.