Avoid These Four Retirement Planning Mistakes In Your 30s

When you’re in your thirties, your retirement seems to be a million miles away – but it’s also an extremely opportune time to begin planning for what is bound to be a lengthy retirement. Indeed, experts are beginning to worry that the average middle-aged Indian is woefully underprepared to successfully live through what could turn out to be thirty non-earning years. Most of us are still counting upon a windfall profit or an inheritance to help ride us through, and this is unwise. For starters, here are 5 elementary retirement planning mistakes you should sidestep.

Letting your risk profile dictate your investment decisions 

So, you’re a low risk taker for no appetite for equities? Never mind, just blindly divert your regular retirement savings (such as Mutual Fund SIP’s) into an aggressive investment such as a mid-cap-oriented equity fund anyhow. If you allow your individual risk tolerance to determine where your retirement savings go, you’ll likely end up earning anything from 6-8 per cent lower (on a post-tax, annualised basis) than you potentially could. And make no mistake – compounded over a 25-year time frame, that’s a mammoth difference. 

Prioritising your Kid’s Education over your retirement 

Sure – you aspire to send your beloved children off to the world’s bets university, and so on and so forth. But it would be a huge blunder to shovel away every last saved penny towards your child’s education, without paying heed to your own retirement. Remember, you’ll be able to avail education loans for your child’s education, but not for your own retirement. Also, would you really like to become a financial burden on your kids at a time that they’re just finding their feet in their careers? 

Investing only in an NPS account 

The NPS (National Pension Scheme) may be low cost, and a vast improvement over traditional endowment life insurance plans and fixed deposits; but they need more reforms before they can become a fool proof retirement solution. For one, the NPS bars you from taking more than a 75 per cent exposure to equities. To make matters worse, your equity allocation is mandatorily slashed by 2.5 per cent every year after your 50th birthday – and that doesn’t bode very well for the returns you’ll earn over the next 10-15 years leading up to your retirement.  

Buying a Pension ULIP 

It’s a fact that ULIP’s (Unit Linked Insurance Plans) have undergone massive structural reforms over the past five to seven years, but that doesn’t take away from the fact that buying a pension ULIP is a misstep. When your pension ULIP matures, you can only withdraw 1/3rd of the funds tax free under section 10(10D) of the income tax act. The remainder, you’ll need to put away in a fruitless annuity that’ll give you a tax-inefficient annual yield of anything from 3 per cent to 5 per cent, depending upon your tax bracket, and the option you choose. Just stick with regular Mutual Funds during the accumulation phase and you’ll at least be free to deploy your retirement corpus as your heart desires!