3 myths of retirement planning

After getting your first job, saving for your retirement years is the first investment decision you should take. Here are three dangerous myths that revolve around retirement planning.

Myth #1: Retirement is so far away that I don't need to start saving now
People usually use this mentality and avoid planning for their retirement. This is for the fact that they wish to fulfil their wants such as upgrading a car or buying that expensive gadget or going on an exotic vacation or the like. While doing so they think that retirement is too far to think of and saving for it now. However, if your retirement is far, then this the best time to invest and save for it as you would need to invest less amount to achieve the desired corpus for your retirement. If you start late then you would require more amount to achieve your retirement needs and as you progress, the required corpus may change due to the change in lifestyle or any other reason. So, the best time is to invest early for retirement to gain maximum out of the compounding effect. Compounding effect works best in the long-term.

Myth #2: Health insurance will cover all my healthcare expenses in retirement
Yes! Definitely health insurance can cover all your healthcare needs during retirement. However, the thing to note here is that the premium of such plans increases with increase in your age. Even you need to increase your insurance cover from time to time so that it can match with the current health status and insurance premium in such cases may be exorbitant depending on the underwriting rules of the insurance companies. So, when it comes to healthcare needs post retirement, it is better to save and invest for such needs and include the same in your retirement corpus.

Myth #3: I'll only have 70 per cent of my pre-retirement expense in retirement
When you think of expenses in retirement years, it is a general thumb rule that you would require around 70 per cent. This is for the fact that till you reach your retirement you have almost done with your responsibilities and even you have created assets such as car, house, etc. Also, you have done with paying off your debt, whatsoever. So, as a general thumb rule, it is assumed that you would require 70 per cent of pre-retirement expenses after retirement. However, it is not true in many cases and it may differ from person to person as people have different lifestyles and standard of living. If you are a person who keeps a low profile when it comes to lifestyle, then for you 70 per cent rule may apply. However, a person whose lifestyle is lavish and who also wishes to maintain the same post-retirement then he would probably require more than 70 per cent of his/her pre-retirement expenses in retirement.

So, it is very crucial for you to understand the importance of retirement planning. Even if you are covered by EPF (Employee Provident Fund) and NPS (National Pension System), it doesn’t mean you are covered entirely. So you are required to plan for retirement and invest for the shortfall, if any, even after considering EPF and NPS.