A survey report collated by HSBC shows that almost 21% of Indians belonging to working population have not yet started saving for their retirement while 44% of Indians have discontinued their retirement savings due to several challenges confronting them.
The above numbers prove that starting investments for a goal might be difficult but staying focused on a financial goal is even more gruelling. Building retirement corpus is one such goal that can take a hit anytime as people tend to prioritise current needs over future expenses. In view of the vulnerability of the retirement corpus, it is important to form a strategy that will prevent one from raiding their retirement corpus.
- Responsible withdrawals - If withdrawal from retirement nest egg seems inevitable then be responsible while doing so. Such withdrawals should be preceded by evaluation of other options such as borrowings or taking a loan. At the same time, withdrawals should be as sparing as possible.
- Putting back is important - Once the need is taken care, individuals should proactively act towards restoration of withdrawn amount. Needless to say, restoring retirement corpus is extremely important and should include adding additional amount to match the interest foregone as a result of earlier withdrawals.
- Breaking away from Indian mindset - It is important to reiterate that retirement corpus should be the last option for meeting financial needs. However, most of the times, higher education of children or their marriage force parents to fulfil the shortfall using retirement corpus. Ideally, these circumstances should be taken care through sourcing funds from other alternatives such as education loan or personal loan. Given the trend of disappearance of joint families as well as increasing number of young adults staying away from their parents, it is critical to give priority to building retirement corpus over anything else.
- Reviewing the need - At times, people are not mindful about withdrawing from their retirement corpus and give in to short-term goals such as offshore vacations, upgraded car or short-term investments in real estate. At this stage, it is necessary to review the motivation or urge of such withdrawals and most of the times, a careful evaluation can help to take a step back. For example - a couple in their 50s might be prompted to buy an upgraded car as a result of improvement in their lifestyle. It will not be an exaggeration to state that a car, which is a depreciating asset, can bring only a short-term happiness that will tend to diminish over time. Moreover, buying a car may mean increased maintenance costs over period of time. Now, if the couple decides to stay invested and retain their existing car then they will be in a better position to maintain their lifestyle for a longer duration post-retirement than otherwise.
- Restricting lifestyle improvements- It is a common fact that improved salaries or business incomes can follow a steep surge in lifestyle needs. While a little boost in lifestyle is encouraging,any substantial change should be avoided. This is due to the fact that phases of financial uncertainties can make it difficult to maintain existing lifestyle and force people to borrow from their retirement corpus. For this reason, lifestyle should always be maintained at a level that can sustain even during short duration of financial crisis without depending on retirement corpus.
Aforementioned points are few of the basic yet vital steps that individuals can adopt to prevent unplanned borrowings from retirement corpus.
About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. She is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.
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