When it comes to retirement, everyone dreams of one thing – to have a comfortable retired life, free from financial worries. While you toil day in and day out during your entire working life, you require a laid back and easy retirement, do you not? This golden dream of retirement is seen by many but achieved by few. Do you know why? It is because of a lack of proper planning. As per a report published by RBI, this is Indians’ attitude towards retirement funding –
This attitude leads to bad retirement planning and you don’t get to live your golden years the way that you dreamed. But, you can retire rich if you are careful with retirement planning. Here are six financial mistakes to avoid when you are planning for your golden years –
The first and the most important mistake is starting a retirement corpus late. Most of you consider retirement to be a distant reality. That is why procrastination is a regular norm when building a retirement corpus. Here is where you find the first pitfall. Starting early, no matter how small the amount is, gives you best returns over a longer period. This is because of the power of compounding. Have a look at the numbers yourself. If your retirement age is 65 years, here’s what a 10-year delay does to your corpus –
Just a delay of 10 years and you lose Rs.2.28 crores worth of corpus! Would you want that?
Not factoring in inflation
Inflation is a very potent factor which is often ignored when investing towards retirement. You factor in your current lifestyle costs and build a retirement corpus. This leads to an underestimated corpus which falls short when you actually retire. It is common knowledge that the value of money falls over time. The purchasing power of Rs.1 lakh today would not hold good a decade down the line. Yet, most of you forget inflation and invest in fixed deposits for retirement. This is a mistake. Your retirement corpus should be such that it grows with a growth in inflation. That is why market-linked instruments are the best avenues for retirement saving.
Missing out on health insurance
Many of you avoid a health insurance plan of your own because you already have an employer-sponsored plan for your healthcare needs. What would happen when you retire? Would your employer-sponsored health plan cover you post retirement? Buying a plan in older ages is bad as you get limited coverage and that too at higher premiums. Health insurance becomes all the more relevant after retirement as your body becomes more susceptible to illnesses. As such, avoiding a health insurance plan is a bad idea. So, always buy an independent health insurance plan with a sufficient sum insured level early on in life and renew your plan lifelong.
What happens when you save towards a long-term goal? Most often than not, you are tempted to utilise your investments on other financial requirements. What happens then? Your corpus is dented and you fall into the trap of undisciplined investing. This is particularly relevant with retirement planning and is one of the most common pitfalls. Since retirement is not an immediate goal, though you start building a corpus, you often withdraw temporarily from the same or don’t invest regularly. You should avoid this. Your retirement corpus should be an earmarked investment fund. You should avoid using it on any other financial liabilities. Invest regularly to build the fund slowly and let compounding work its magic.
Remaining in debt
Experts advise that as you age your debt should decrease. However, you don’t follow this advice. Your debt seems to mount and you become a victim of a debt trap. Avoid this pitfall. As you approach retirement, try and pay off your liabilities. As you retire, your income would stop. Your retirement corpus should be used up in meeting your lifestyle expenses post retirement, not for paying off your debts. So, try and close your debt as you grow old and retirement is near.
Lack of diversification
The last pitfall which should be avoided is favouritism. Though some investment avenues might be your favourite, you should have a diversified portfolio. Diversification minimises risk while at the same time maximising returns. So, don’t put all your eggs in one basket. Allocate your retirement savings into different avenues.
Retirement planning can be a very simple affair if you avoid these pitfalls and be careful. So, be careful, steer clear of these mistakes and build yourself a comfortable retirement