Retirement planning: Know the risks that can crack your nest egg

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Updated: August 10, 2018 11:34:34 AM

It is important to let your regular income continue after retirement, but it is also equally important to not let that income erode due to inflation, interest rates or unexpected healthcare costs

Retirement planning, financial stock market, life expectancy, fixed income, fixed income investments, post retirement High inflation rates can eat away your hard earned savings faster than you planned.

Sometimes, even some of the best retirement plans that you have worked very hard at achieving are subject to certain unforeseen risks or loss. Anyone who has studied the 2008 financial stock market meltdown knows there is always a risk that retirement savings accumulated over the years can get wiped out. High inflation rates can eat away your hard earned savings faster than you planned. With rising life expectancy, people may outlive their investments and their accumulated money may not be enough to sustain the desired lifestyle due to personal situations and rising healthcare costs. What is inevitable is risk—decline in value of an investment during investing. As an investor, you need to take into consideration the different risks that one may face. Keeping this in mind,
making wise investment choices can help diminish risk in a way that helps you reap rewards.

Right balance

The aim, of course, is to decide the right balance of solutions, given the risks that you may face after retirement. For some of you, reviewing and rebalancing your investment strategy may be important. For others, investing less in equities while investing more in safer instruments could be important and for the rest, investing only in safer instruments may be of utmost importance. Nonetheless, for those of you close to retirement or those who may have already entered that phase, it is important to understand the types of risks that lie ahead and how you may overcome it by protecting the retirement kitty and letting it continue to grow.

Let us look at the different types of risks that you may come across and what solutions you can take to make sure your retirement corpus outlives you.


Inflation can have a big impact on retirees, especially those living on a fixed income. Even though various financial responsibilities such as taking care of children’s education reduce, other personal duties cannot be ignored. For example, if you have set aside Rs 3 lakh per annum for your retirement, you will still have the same amount of money, but its value will not be much due to inflation. The value of your retirement corpus will get depleted if inflation is not taken into consideration.

Interest rates

The interest rates of savings accounts are already touching the floor. With banks offering lower interest rates, it would be a complete dampener for those surviving on fixed-income investments. Senior citizens and retirees who depend on income from their investments are the ones who are impacted the most.

Unexpected health care costs

Due to advances in medical science, there is a general increase in the lifespan of individuals which leads to higher medical expenses that you may not foresee well before your retirement. The post-retirement phase could be as high as 30 to 40 years. Any financial plan should assume a long lifespan. Unexpected health care costs are a major concern. Long-term health issues such as an accident, illness, chronic disease, cognitive impairment can drain your savings when mental or physical capabilities deteriorate. Ignoring such issues and failing to plan adequately for post-retirement phase may not allow individuals to amass sufficient funds with which they can accomplish all their dreams and enjoy a peaceful retirement life.

Asset allocation

Once retired, earnings stop. Many retirees want to follow their hobbies or travel to their dream destinations. It is important to let your regular income continue after retirement to fulfil those dreams but it is also equally important to not let that income erode due to inflation, interest rates or unexpected health costs.

If you wish to grow your money and you have some amount of risk appetite, you can look at equities. Remember, asset allocation always plays an important role in the kind of returns your investments generate. Allocate your assets wisely by keeping risk under control which will help grow your investments and take care of your post-retirement financial needs.

(—Quantum Mutual Fund)

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