May 28, 2024

Common Post-Retirement Risks You Should Know

When you are a working individual, it is easy to balance out any financial mistake that you might commit. Your salary and any other source of income can help you even out mistakes over a period of time. This option, however, is not available once you retire. As you are no longer working, you do not have a regular source of income. This can prove to be dangerous as you try to adjust to a life of retirement. While a pension plan might help you in getting some income on a monthly basis, there are some mistakes that you should watch out for during your retirement. Read on to understand more about these mistakes.

What is a pension plan?

A pension plan is a type of life insurance product. Pension plans offer you the benefit of a fixed monthly income. This allows you to be financially stable once you have retired. There are different types of pension plans that you can invest in. ULIPs offer you investment and insurance under the same policy. This means you can get a good lump-sum maturity benefit. On the other hand, you can opt for immediate and deferred annuity plans to get monthly income for immediate requirements.

What are post-retirement risks?

Retirement planning is different for everyone. While some might want to simply relax, other might want to travel or pursue their dreams post their retirement. However, risks are common for everyone once they have retired. These risks are:

  1. Investing in the wrong financial instruments

You are always advised to invest your salary in good financial instruments to gain steady returns for the future. These returns can benefit you greatly once you have retired. However, not everyone is aware of the instrument that would benefit them. Lack of information and confusion can lead many to invest in an instrument that could cause them losses. For example, it is risky to invest purely in equities. The equity market is highly exposed to market fluctuations and can cause you to lose your entire investment.

Inflation is something that cannot be overlooked when it comes to investment. When you invest in the market, a rise in inflation could not just impact your daily life, it also impacts your investment. The returns you gain could be lower than expected.

  1. Not having a back-up source

While market investments are always the preferred choice when it comes to increasing one’s wealth, one cannot help overlooking the benefits of having a back-up source of income. Usual examples for a back-up source of income could be type of deposits. These deposit accounts provide you with interest on your savings. This enhances your savings without any change in the amount you have saved. More importantly, you can withdraw the amount at the time of an emergency.

  1. Not considering other options for investment

One of the important thumb rules of investment is never to invest in just one asset class. For example, investing purely in equities is not a good idea. Equities react to market fluctuations and might increase or decrease your portfolio. While this is applicable to market investments, it also applies to other types of investments as well. As mentioned earlier, you need to have a back-up source of income. Diversifying your investment helps in doing that. Opting for passive sources of income can help you get slow and steady returns without the impact of market fluctuations. Similarly, try for debt funds or other funds that have a low-risk factor and maintain your returns without exposure to market risks.

How to manage these risks?

Investing in pension plans such as immediate and deferred annuity plans, ULIPs, EPFs, etc., can be beneficial post-retirement. Having health insurance for medical emergencies will help in maintaining your savings. Understanding which instrument is suitable for you and diversifying your portfolio is also an option.

These are just a handful of post-retirement risks that you should be wary of. Before you invest in pension plans, use the retirement calculator to see what type of plan you should go for based on your requirements.

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