5 Common Retirement Planning Mistakes to Avoid

Do you know, what are the five stages of retirement? It consists of looking forward to the end of working years, the liberating feeling after retirement, disenchantment once retirement bucket-lists are complete, rediscovering your identity, and finally settling into a rewarding retired lifestyle.


But to reach the fulfilling final stage, you need to overcome the phases when you face a loss of purpose. However, if you have to compromise with your lifestyle to avoid outliving your retirement funds, getting out of the disenchantment phase can be challenging.


A sound financial plan starting from the pre-retirement phase can ensure financial freedom post-retirement. But you must avoid some common mistakes to prevent cash-crunches from interfering with a peaceful retired life.


What are the biggest retirement planning mistakes?

1.  Underestimating retirement-savings requirements


Knowing how much you need to maintain your current living standards after retirement can help you avoid cutting costs later. Take the following factors into consideration when you make the future cash flow projections and plan for retirement:


  • Life expectancy: Progress in healthcare makes active life well into your 80s or 90s possible. Thus, you need enough to cover your living costs for decades after your salary stops.
  • Inflation: The average inflation rate from 2012 to 2020 has been 6.07%*. At this rate, the price of items that cost ₹1000 today will rise to ₹3249.76 twenty years down the line. Hence, you need to factor in inflation rates to estimate retirement needs accurately.  
  • Taxes: Consider the tax you will need to pay on your retirement income to know how much you should save. Look for pension plans providing tax-exempt@ returns.
  • Medical expenses: Age-related health issues or unexpected medical emergencies can erode your economic security if you have to spend on healthcare out-of-pocket.


2. Not starting to plan early enough


The power of compounding attracts interest on the returns your principal earns, increasing your capital. Thus, by starting early, your money gets long enough to grow, helping you earn more profits.


3. Trading retirement funds for other life goals


Borrowing or partially withdrawing from your retirement account reduces investment growth. You can invest in separate financial instruments for your children’s college funds, home purchase, or other life goals. But you must ear-mark at least one investment plan for your retirement and let it accumulate uninterrupted to earn good profits.


4. Not preparing for unforeseen expenses


Financial emergencies can force you to cash out your retirement funds. Hence you must always keep a fund containing at least six months’ income aside for contingencies. It can help you tide over life’s uncertainties without denting your retirement savings.


5. Selecting the wrong investment options


Your investment plans must match your future financial goals, risk-taking capacity, and investment horizon.


Many investment options involve high brokerage fees, lowering your profits. If you are nearing retirement, you may not have the time to recover from market volatilities if you put your capital in equities. Also, for a financially secure retirement, rate of return from your pension plans must match your post-retirement monthly income needs.


Hence, you must understand the features of all retirement plans available before making a final commitment.


Work-related pension schemes



Your employer sets up these types of pension plans to help you save for retirement. Different types of employer retirement plans include:


  • Employees Provident Fund (EPF), offering pre-specified interest rates
  • National Pension Scheme (NPS), providing opportunities for market-linked returns
  • Gratuity, where the amount you get depends on your years of service and salary
  • Life-insurance based group pension schemes providing life cover along with gratuity/ annuity   


In both EPF and NPS, your employer and you both have to contribute a defined percentage of your monthly salary. The average rate of return on EPF schemes is often conservative. In NPS, the returns are based on the performance of your chosen funds. Also, you have to purchase an annuity, or a monthly-income plan, with at least 40% of your NPS maturity amount#.


Even if you participate in a pension plan at work, it is advisable to opt for an individual retirement scheme as a back-up.


Individual retirement plans
  • Public Provident Fund (PPF)
  • National Savings Certificate (NSC)
  • Senior Citizen’s Savings Scheme (SCSS)
  • Monthly Income Scheme (MIS) from post offices
  • Annuity plans from life insurance companies
  • Unit-linked or traditional retirement plans from life insurance providers


An annuity plan offers a lifelong income stream. It effectively shields you against any shortage of funds in your advanced age. Some annuity plans provide a return of purchase price, which can secure your dependents’ future financial goals and wellbeing in your absence.


Life insurance pension plans safeguard your loved ones against any financial shortfall if your pension stops due to an unfortunate event..


Also, with guaranteed1 returns from traditional policies, you can be sure of financial resources after you stop receiving pay-cheques. The market-linked products help you tap into the capital market’s high return potential, offering inflation-adjusted returns.


Hence, you should consider including such products in your retirement portfolio to avoid financial uncertainties during retirement.


Retirement Plans from Tata AIA Life Insurance

TATA AIA offers a wide range of retirement solutions to secure your financial stability after retirement.


The different types of retirement plans that TATA AIA Life Insurance offers include:       


Tata AIA Life Insurance Group Employee Benefit Plan (UIN:110L151V02)

  • Gratuity/ leave encashment benefits for employees


Tata AIA Life Insurance Smart Annuity Plan (UIN:110N150V05)

  • Options for immediate start of income or delaying pension as per need
  • Alternatives to get purchase price refund and joint annuity for financial dependent


Tata AIA Life Insurance Guaranteed Monthly Income Plan (UIN:110N147V02)

  • Assured income for double the policy term
  • Additional rewards on large premiums to increase your income


Compare different offerings and select a plan based on your budget and future financial goals. It will protect your old age from financial worries.






@Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.


1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry


*Source:https://tradingeconomics.com/india/ inflationcpi#:~:text=InflationRate in India averaged,percent in June of 2017


#Source:https://www.paisabazaar.com/ savingschemes/npscalculator/#:~:text=Expected Annuity Rate E2%80%93 Under existing,returns to the annuity purchaser.


  • Insurance cover is available under the products.
  • The products are underwritten by Tata AIA Life Insurance Company Limited. The plans are not guaranteed issuance plans, and they will be subject to the Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the Sales Brochure carefully before concluding a sale.
  • This document is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. This document is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this document is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.


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