You get only one shot at your retirement. The cost of getting it wrong can be catastrophic. Therefore proper planning for an optimally funded retirement is a must. So, basically if we talk about risks during retirement, you might feel that it’s too early to worry about it. As risks during retirement are still several years away.
But do you know that not being aware of these risks means that assumptions made today are unlikely to be correct. That would mean that your retirement plan isn’t built for the full set of scenarios. You should know that miscalculating your retirement corpus is a cardinal sin in financial planning. MoneyMindz, First Free Online Financial Advisory Portal is presenting some less-discussed risks that, if left unaddressed, could come back to haunt you in your dotage.
Outliving your retirement savings:
It is the risk of living longer than what you saved for! It’s really good that you will live longer. But again f you don’t have the money, then it can be extremely difficult. For example, suppose you are saving for a retired life of 20 years, i.e. you retire at 60 and (supposedly) die at 80.
This actually means that the retirement corpus you would have accumulated by 60 will be enough to last until you are 80. What if you don’t die at 80? Therefore underestimating the length of your retirement may result in you spending more in early years which might result in the risk of running out of money in the twilight of your life.
Sequence of return risk:
Let’s take you retire with a portfolio of Rs 2.5 crore today. Suppose your starting annual expenses are Rs 10 lakh. If the returns in initial years are negative, then your portfolio will deplete doubly quickly because of annual withdrawals (which themselves increase due to inflation) and due to investment losses. If the return on the portfolio is -10% during each of the first 3 years, then this will be your portfolio position at the end of the 3rd year.
Healthcare becoming part of routine expenses:
Chances of living longer are high. That also means that healthcare costs will continue for more number of years. You also might be in good health. As you age, your body (the machine getting old) will need upkeep and maintenance more frequently. Also all this will cost. You may need to spend money on getting assistance for regular household chores with age. For retires, health-related expenses will become part of predictable routine expenses. Remember that the health insurance premiums will go up with age.
Unexpected events might not necessarily be medical emergencies. There may be others too. You might have to suddenly undertake massive repair work in your house or partly finance a grandchild’s education (if your children don’t plan their finances well). Therefore any large unplanned withdrawal from the accumulated corpus, more so do during the early stages of retirement, can result in a shortfall in the later years.
Unpleasant tax changes:
This cannot be explained here. As you never know when the future governments might decide to introduce / increase taxes on something that you never expected them to. Such risks will always be there.
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