Relying on 12% returns for retirement planning is risky

Many people are considering retirement plans based on a return of 12% from equity mutual funds in India. This figure is often seen as a reliable benchmark because Indian equity markets have historically achieved this level of return over long periods. However, financial experts caution against relying solely on this assumption for retirement planning. Market fluctuations can significantly impact returns. For instance, during past financial crises, many investors expecting steady 12% growth faced drastic losses. Those nearing retirement had to change their plans drastically, while younger investors who kept investing through the downturn eventually benefited from the market recovery. Recent market corrections also illustrate this point. Since October 2024, the Nifty index has fallen about 14-15% from its peak, reminding everyone that markets can be unpredictable. It reinforces the idea that average returns don’t tell the complete story; some years may show gains while others may result in losses. Instead of just assuming a fixed return, experts recommend considering different scenarios. For example, one could plan for conservative scenarios with 8-10% returns, moderate ones with 10-12%, and optimistic cases with 12-14%. This method can provide a clearer picture of retirement needs and potential shortfalls. Inflation is another crucial factor that needs attention. If inflation averages 6%, the real return on the investment may only be about 6% instead of 12%. This means your retirement savings might not stretch as far as expected due to rising costs. To create a solid retirement strategy, experts encourage a balanced approach. This includes mixing stable investments with growth-oriented options and spreading investments across various asset classes like equities, bonds, and real estate. Understanding one’s own financial behavior is also vital. Investors should consider whether they can stay calm during market downturns. Those who have realistic expectations and adapt their strategies tend to perform better in the long term. In summary, while a 12% return is feasible, flexibility and a diversified investment strategy are key to effectively preparing for retirement. Regular reviews of one’s plan will help ensure long-term success.