Habits that drain retirement savings in india fast, Know more

The first 5 years of retirement can be the most expensive and difficult. Health, lifestyle, and sudden expenses can finish your savings. Therefore, this period can be made safe and tension-free only with the right planning and understanding.

Everyone believes that retirement means a life of 'peace and comfort', but the truth is that the first 5 years can prove to be the most expensive and challenging. In fact, from health expenses to increasing lifestyle needs and sudden expenses, all these can shake your retirement plan. So, do you have a strong plan for such a time? If not, then let us know why these first 5 years are the most important and how, with smart planning, you can cross this phase without tension.

The first 5 years of retirement: Why are they the most expensive?

1. New style of retirement, expenses do not remain the same

Often people believe that expenses will reduce after the job because there is no commuting to the office, no worry of children's education, and maybe even the home loan will be over. But actually, expenses suddenly increase in the first few years of retirement such as more travel, fulfilling hobbies, medical expenses, or helping children financially etc.

2. Health expenses do not increase gradually, but rapidly

After the age of 60, expenses like health insurance, tests, medicines and regular checkups suddenly start increasing. If you have not taken any health insurance beforehand, then your entire savings can be used up in the expenses of medicines etc.

3. Emotional expenses also give a big shock

Daughter's marriage, renovating a new house, giving gifts to children or buying a holiday home in a hilly area, all these can be sudden decisions and their impact can be big on your savings.

Now let's understand the expenses of a couple who has retired in a metro city

Type of expenses

After retirement, each person may have to spend an average of ₹9,00,000 every year. This may include about ₹4,80,000 for daily household expenses, about ₹1,80,000 for healthcare expenses, ₹1,20,000 for travel and holidays, ₹60,000 for family, weddings and festivals and about ₹60,000 for other unexpected expenses. In this way, at least ₹45 lakh may be needed in the first 5 years. This means that without solid planning, the retirement fund can be exhausted soon. Although these figures are illustrative, every retiree's situation is different, and expenses also change with time.

Prepare in these 5 smart ways

1. Create a separate 5-year retirement reserve

Never keep all your funds together. Yes, create a separate reserve for the first 5 years which includes monthly fixed expenses, medical expenses and emergency fund. Invest it in these low-risk options-

Senior Citizen Savings Scheme (SCSS)

Post Office Monthly Income Scheme (POMIS)

Bank FD (with staggered maturity)

Short term debt or liquid mutual funds

2. Create your pension-like income with SWP

Instead of withdrawing a large amount at once, set up a Systematic Withdrawal Plan (SWP) from the mutual fund. With this, you can withdraw a fixed amount every month and keep getting returns on the remaining funds.

3. Make a budget in advance for big expenses

Always keep a separate budget for expenses like children's marriage, foreign travel or home repair. Keep these separate from the monthly budget and keep them in FD or ultra short debt funds.

4. Keep inflation in mind from the beginning

Expenses increase every year, from pulses to rice to medicines. So while planning, you should estimate that your monthly expenses will increase by 5–6% every year.

5. Make a health emergency fund

Keep in mind that insurance does not cover everything, so keep a health emergency fund of ₹3–5 lakh in a liquid savings account, so that expenses like dental treatment, diagnostic tests or home care can be met without any hassle.

6. Review your financial plan every year

Expenses and income should be matched every year. That is, are you spending more than necessary? Are the investments performing as expected? In such a situation, if needed, the portfolio should be rebalanced.

That is, it is clear that the first 5 years of retirement determine the direction of your next 20–30 years. So inflation, medical expenses and changed lifestyle can put pressure on income. Therefore, it is necessary to make a strong and flexible plan, monitor expenses and manage investments properly. (Note- The news is based on general information. You should plan for your post-retirement based on your expenses etc.)

FAQ

Q1. Why are the first 5 years of retirement the most expensive?

A1. In the first 5 years, health expenses, travel, lifestyle changes and emotional expenses suddenly increase, which can take a toll on your savings.

Q2. Does expenditure reduce in retirement?

A2. No, contrary to popular belief, expenses do not decrease in the first few years of retirement, but in many cases increase.

Q3. Which plans are necessary for the initial phase of retirement?

A3. Health emergency fund, separate expense reserve of 5 years, SWP plan and investment keeping inflation in mind are very important.

Q4. Is medical insurance enough in retirement?

A4. No, after retirement, many times the expenses exceed the limit of insurance, so a separate health fund is necessary.

Q5. Why should the retirement plan be updated every year?

A5. Expenses, inflation and health condition keep changing, hence annual review and rebalancing of the plan is necessary.