Bullet money payments  from PF, Gratuity, Superannuation, etc. at the start of retirement often gives a feeling of sudden windfall. Although clients are aware about long term retirement liabilities, there is a general tendency at this time for larger withdrawals. The money is required for overseas vacations, home renovations, family get-togethers, and sometimes to support married/ unmarried children. I have seen people hurrying up their gifting for grandchildren, giving away small yet meaningful chunks of retirement pie. Even before they have actually retired, they have bucket list of expenses to incur as and when the windfall is received. As a result, many underestimate the long term retirement needs, and therefore make a BIG retirement mistake.

At the outset of retirement, the retirees are in the process of adjusting to new lifestyle, where they have lot of time on hand, and are bored without official socialising. Sometimes, this lead to higher travel expenses to meet and greet family and friends. Sometimes for some people, first phase of Retirement is spent like a party of lifetime.

People, during their retirement, expect to live on fixed income and fixed lifestyle. But they have little idea about how much their need for income and expenses can fluctuate overtime. Inflation, medical needs & lifestyle can easily double the amount of annual expenditure in 7 to 8 years. Considering that an average couple (on last survivor basis) can live for 20 to 25 years post retirement, at some point in time in future, they would be incurring 5 to 7 times more than the current expenditure. Our minds are not attuned to this kind of calculation. Therefore, people generally don’t build this kind of scenario when they plan their investments without help of financial planners.

Also, while initial expenses are high, often Retirees exhibit very low risk appetite. Accordingly, they park their surplus in those investments that are liquid and least volatile. Needless to mention, this strategy makes them fall behind inflation.

The disproportionate chunks of withdrawal in the early years of retirement can seriously dent the retirement lifestyle over longer term. An important advise for Retirees is to have a comprehensive and documented financial plan, almost a year before they actually retire. Once you have received the bounty from gratuity, PF, superannuation etc., first action should be to secure your long term sustenance, by investing as per the plan. They should plan their expenses within defined limits, and invest the portfolio in diversified, tax efficient and income generating portfolio.