Beware Of These Five Retirement Planning Myths

Retirement planning is critical, and an increasing number of us are waking up to this fact. In recent times, retirement thumb rules and calculators have proliferated en masse. New and innovative Advisory businesses have mushroomed in all parts of the country, focusing on the specific goal of ensuring a comfortable retirement for their clients. All the increased awareness notwithstanding, here are a few common retirement related myths that persist even today.

Myth 1: Your expenses will shrink dramatically post-retirement
Remember, you'll be left with a boatload of spare time after you retire. You may want to travel more often, visit your grandchildren, and enjoy more leisure activities - all of which will consume your hard-won cash. Your expenses will likely stay the same, or even go up.
A recent Manulife survey uncovered that 38 per cent of Asian millennials expect to "support their parents and children at the same time" - envisage the amount of strain that could put on your finances when you near your retirement age! The same survey found that 39 per cent of millennials expect healthcare to become too expensive during retirement, and 43 per cent expect that their health will deteriorate to the point where they can no longer work. Bottom line - don't hold your breath waiting for your expenditures to plummet after you retire. They quite possibly will not.

Myth 2: Your health insurance will be sufficient to cover post-retirement medical expenses
Per a Retirement study conducted by Singapore based DBS in 2016, Indians are deeply - and rightfully - concerned about their ability to afford quality medical care after their retirement. There's also a significant degree of ambiguity about how one should go about estimating post-retirement medical expenses.

Truthfully speaking, even purchasing a good quality medical insurance policy will probably not suffice port retirement. Given the inflationary trend in healthcare costs, and the fact that medical expenses tend to spike after 60, the maximum coverage offered by most senior citizen medical insurance policies may prove to be inadequate.

Most senior citizen medical insurance policies cap their sum assured at Rs. 5 lakhs, with just a handful of policies offering sum assured numbers of Rs. 10 lakhs. Exacerbating this is the fact that there are restrictive clauses for the pre-existing conditions that would most likely prove to be the main contributors to your post-retirement costs! One should ideally build up a sizeable corpus (asides of health insurance) to cater to potential post-retirement medical expenses for themselves and their spouse.

Myth 3: Your real estate holdings will suffice
Many retirees or near-retirees bask in the false comfort that their real estate holdings will suffice post retirement - either by bringing in a rental income, by creating an income stream through a reverse mortgage, or through a sale.

While this belief may indeed hold some truth for those with colossal property holdings, it's a dangerous fallacy for the clear majority who have labored through the years to build out a property or two over the course of their lifetimes - for multiple reasons.

Having entered your golden years, you may be disinclined towards liquidating or reverse-mortgaging your real estate assets to generate cash, preferring to bequeath them to your next of kin instead. Even if you do choose to sell or let out your property, you may find that the markets unconducive - and your liquidity could run dry while you embark upon the tedious task of finding a stable tenant or buyer. Creating a sufficient quantum of safe, liquid cash is critical; irrespective of the might of your property portfolio.

Myth 4: You can extend your retirement age indefinitely
"I can always extend my retirement age" is the ubiquitous war cry of those who lack in savings discipline when it comes to retirement planning. This isn't completely true, though - most companies do have a forced retirement age ranging from 58 to 65 years, and it's likely that your entrepreneurial valor and risk-taking capacity will both be significantly sapped after a lifetime of toil. Your energy levels and health will likely take a hit as well.

While it's a lofty goal to continue working well into your retirement; and Sumner Redstone, Warren Buffett and Shelden Adelsen make for compelling and inspirational examples, it would probably be wise not to depend too much on your ability to generate cash through daily work, after your retirement.

Myth 5: There's a magic number
Many clients - and advisors - tend to follow the incorrect practice of anchoring themselves to an arbitrary figure (such as 1 crore, 2 crore or 10 crore) and touting that number as an appropriate retirement savings target for everyone. There's no "one size fits all" figure when it comes to determining what the size of your corpus should be on the day you hang up your work boots. Your individual figure would depend upon several factors - your other income streams such as rent, how well settled your kids are, your travel plans, and your family health history; to name just a few. Random numbers and thumb rules related to the accumulation & distribution phases also abound - such as: saving 10 per cent of your income will suffice, withdrawing 5 per cent of your final corpus a year is OK, and the like. Only a detailed plan - taking inflation, your projected post-retirement lifestyle, the nature of your dependencies, your life expectancy and other factors can ever really help you arrive at a robust savings target and deployment strategy.