How can a personal loan impact my retirement planning?

A personal loan can have a direct influence on your retirement planning, and the impact can be either positive or negative depending on how you manage the loan in relation to your long-term goals.

If you take a personal loan and a significant portion of your income goes towards EMI payments, you may find it harder to allocate funds for retirement savings or investments. This diversion of resources can delay your retirement goals, reduce the amount you accumulate for your post-retirement years, or even force you to adjust your expected lifestyle after retirement. The fixed monthly outgo for loan repayment can limit your ability to contribute to provident funds, pension plans, or other long-term investment vehicles essential for a secure retirement.

However, a personal loan can also play a stabilising role in your financial plan. For example, if you use the loan to consolidate high-interest debts or cover essential, unavoidable expenses—such as medical emergencies or urgent home repairs—it can prevent you from dipping into your retirement corpus or liquidating long-term investments prematurely. This approach helps you maintain your investment strategy and keeps your retirement plan on track, provided you have a clear repayment plan and the loan does not overburden your finances.

To prevent financial stress and guarantee that you can keep saving for retirement, experts advise that your monthly EMI obligations—including those from personal loans—should ideally not exceed 20–30% of your income. It's also critical to match your expected retirement date and income cycle with the length of your loan and the repayment schedule.

Make sure your retirement savings are still your top priority, carefully consider the long-term effects, and account for all expenses before taking out a personal loan near retirement. You can meet your immediate needs without jeopardising your retirement security by using a personal loan strategically, adhering to a strict budget, and making your loan payments on time.