Here are some common stumbling blocks before and after retirement that can mar your journey.
Before FIRE
Underestimating expenses
Have a realistic understanding of expenses in retirement, including healthcare, housing and other costs. “Inflation levels, especially for critical illness and children’s education, have been scaling up over the past few years. Apart from monthly expenses, it is also important to get to a realistic number for larger milestone expenses,” says Dinesh Rohira, Founder & CEO, 5nance.com.
Overly aggressive savings
Being overly aggressive can lead to a poor quality of life that may not be sustainable in the long run. “While frugal living is central to FIRE, it will come with the constant pressure of living within your means. You’ll also need to find a way to deal with big responsibilities before you retire. A frugal lifestyle may not gel well with a big home loan EMI, for instance,” warns Adhil Shetty, CEO of BankBazaar.
Inadequate emergency fund
You may want to invest all your liquid corpus in financial instruments in a hasty dash towards the FIRE target, but having a safety net is important to avoid derailing your financial goals. “Most retirement portfolios will have risk assets and their returns won’t always deliver as per expectations. Such potential risks have to be accounted for,” says Rohira.Neglecting insurance
Insufficient insurance, both for life and health, can leave you vulnerable to unforeseen events that can disrupt your path to FIRE, especially if you have dependants.
After FIRE
Not factoring in inflation Failing to account for inflation can erode the purchasing power of your savings over time. It’s essential to have an investment strategy that keeps pace with inflation.
Withdrawal rate mismanagement
Not having a well-planned withdrawal strategy can deplete your savings too quickly, especially if you’re withdrawing too much, too soon. Consider safe withdrawal rates and adjust for inflation. “If your savings are to last a lifetime, you’ll need to be frugal. FIRE isn’t the permanent vacation many often visualise it to be. Frugal living is central to FIRE,” warns Shetty.
Relying solely on investments
Being overly reliant on investment income can be risky. If your corpus is getting depleted faster than anticipated, consider diversifying your income sources and continuing to work, including taking up part-time work or side gigs, if needed.
Lack of purpose
Sometimes people don’t find retirement as fulfilling as expected. Some struggle with lack of purpose. It’s essential to have a plan for how you’ll spend your time to stay engaged and satisfied. “One must always consider the social impact of FIRE. You may lose your professional identity. You may also be cut off from your peers who are continuing to work. it’s important to have plans and goals to pursue in retirement,” says Shetty.
Ignoring healthcare costs
Not adequately accounting for healthcare costs in your post-FIRE plan can lead to financial difficulties, especially if you already suffer from a medical condition or have a family history of lifestyle diseases and other medical issues. It is vital to have adequate health insurance to cover you and your dependants. You can take a base plan of Rs.5-10 lakh, along with a super top-up plan ranging from Rs.50-90 lakh depending on where you live and your health condition.
Failure to re-evaluate
As life circumstances change, your financial plan should be flexible enough to adapt. Regularly review and adjust your plan as needed. “The most common pitfall with FIRE is that people get cosy in retirement. One must always be prepared for any change that may force them to get back to work. One also needs to be employable and stay relevant,” says Rohira.
