Myths about retirement

If we Google the word retirement then there are 1.46 billion results. We can find a lot of information and facts on the internet and this has led to the formation of certain myths but the fact is that there is no one size that fits all. So, following are some of the myths that revolve around retirement which you should not fall prey for.

Post retirement one requires 70 per cent of their pre-retirement expenses
This is a general rule of thumb that you would require 70 per cent of your pre-retirement expenses after retirement. However, this may not be true in all cases. The per cent of pre-retirement expenses required after retirement is subjective rather than objective. It should usually depend on the lifestyle that you wish to have post-retirement. There is a possibility that people’s lifestyle would change drastically in retirement. Maybe during retirement, they would wish to do things which due to responsibilities they may have deferred. Things such as going for an international vacation, having a farmhouse or even engaging in philanthropic activities. So, such a lifestyle may mean 100 per cent or even more of pre-retirement expenses in post-retirement stage.

EPF and NPS contribution is enough for retirement
This is one of the notions among people that if they are contributing towards EPF (Employee Provident Fund) and NPS (National Pension System) then they would have enough money to live well during retirement. However, people must understand that before having this notion it is really very important to understand how much do you need in retirement. The lifestyle that you are currently carrying may change in retirement, even your financial goals will change and so does your health and healthcare costs. So, to cope with all these it is really important to have the right portfolio which would help you to achieve the probable amount that you would be requiring in retirement.

You should take a very conservative investment approach
It is said that in retirement as the income is low or there is no income at all. So the main intention is to protect the capital rather than growth. This is the right approach. However, it doesn’t mean that you should stay invested only in bank FDs or debt instruments. As we know, due to advancement in healthcare facilities the life expectancy has increased and in turn your retirement period as well. So, to serve your retirement you need to also have an equity component in your portfolio. Irrespective of risk appetite, at all times it is important to maintain equity exposure to a minimum of 25 per cent of your overall portfolio as equity would help you cope with inflation.