Faults and mistakes in Retirement Planning

Drawbacks of New Pension Scheme

• Tier 1 option doesn’t give much flexibility ‘ It’s a rigid structure. A little flexibility with respect to premature withdrawal would have made it more lucrative.
• Annuity rates post maturity is not fixed ‘ There is no floor rate decided so one cannot be sure of the returns until maturity.
• Fund management costs might increase in future ‘ Depending on the pension liability and costs involved this rate might shift northward.
• Only six fund managers make it a risky proposition ‘ If it is taken into account the working population of India this number seems to be highly risky. As the number of subscribers increase hopefully government will increase this number.

There are several ways that a retirement plan may turn out erroneous because of misconceptions and miscalculations. Listed below are few mistakes to avoid while forming a retirement plan.

• No planning: Most people do not have a good idea of how much they need to save for retirement; only 44 percent of workers responding to one survey said they had tried to calculate what they would need, and an equal number simply “guess at how much they will need” for a comfortable retirement.
• Not diversifying investments: Without proper diversification an individual is subjected to higher risk with only a possibility for better returns. A properly diversified portfolio will help minimize risk while maximizing the return.
• Cashing out: Many a times, a person cashes his/her employer retirement plan when they resign. This should be avoided as this distribution becomes fully taxable and subject to an additional early withdrawal penalty. When leaving a company, the money should be rolled over into the new employer’s plan. This eliminates any current taxes or penalties that would otherwise apply.
• Retiring too soon: Working a few years beyond the planned time may result in a large bonus in retirement security. Every additional year of working income is a year in which helps the retirement balances. Hence, staying on the job a few additional years can boost income in retirement by one-third or more.

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