"The question isn't at what age I want to retire, it's at what income." - George Foreman. And, it is very well said! Retirement planning is important to lead a happy and peaceful life. Several factors affect the outcome of your retirement planning objective. But, if you get it right, you are on the right track! Unfortunately, people often fail by making simple mistakes that can have a huge financial impact later. Here are a few common mistakes to avoid that can help you factor out the possible defaults in the financial aspects of your retirement life.
Common Retirement Planning Mistakes To Avoid
While working on a financial plan, getting it right for the long-term benefit is important. Here is a list of common retirement mistakes to avoid.
Having no plan for your retirement - You might take for granted the lump sum retirement corpus they receive after their employment phase that will suffice for their retirement life. However, you may be unable to utilise a lump sum wisely for all your financial needs after retirement. Either you spend too much initially and suffer as you proceed, or you keep spending less and not enjoying the golden retirement period. Therefore, having detailed retirement financial planning is important.
Not taking the initiative to calculate the required funds for retirement - You might take the initiative to plan your retirement by investing or saving a specific fund regularly. But, can it suffice for your retirement needs? Well, if not accurate, you need to have an approximate value!
For example, considering your lifestyle today, you can calculate routine expenses such as groceries, clothing, travel, entertainment, medical, etc., to derive the approximate expenditure accounting for the inflation rate and invest in financial products accordingly. In addition, having an emergency fund for unexpected financial obligations is equally important while planning your retirement.
Not choosing the right investments - Different financial institutions, such as banks, insurance providers, government, etc., provide retirement planning solutions. These solutions provide retirement benefits while also helping you save on taxes*. You must analyze the various products available to choose the best product that will suit your financial needs and affordability.
Thinking it is too early to start planning for retirement - It is important to realise the need for retirement planning when starting your career. At that younger age, you will have limited financial responsibilities, longer time to invest and a higher proportion of funds to save for the longer term. Also, you will start developing the discipline to save a specific fund regularly. The longer you invest, the higher the benefits.
Not choosing the right investment mode - Retirement planning should be based on your affordability and risk appetite. For example, if you have chosen a retirement investment plan that provides market-linked returns, you need not be too conservative if you have started investing in it early in life.
Over the long term, financial securities and the related investment value will get corrected and appreciated. On the other hand, if you have started investing later in life, you can choose less risky debt funds to sustain your investment value.
Not realising medical expenses - Many of us fail to consider the medical expenses we might incur during retirement. Considering the illnesses and ailments that strike your older age should be a major consideration while planning your retirement investment.
Planning based on unrealistic expectations - You might consider groceries and medical expenses to be the only expenses you incur after retirement. However, it is common for you to go on travel exploring different parts of the country, participate in a family function, go out on a weekend getaway, watch a movie, etc. These travel and entertainment expenditures need special consideration while planning retirement to lead a comfortable and financially independent life.
Focusing largely on family obligations - There is also the probability that you focus on your family obligations, such as paying for your child's school education, purchasing a new house etc., more than your retirement planning objectives. Planning for family financial responsibilities and clearing off debts should be considered. However, it should not dominate your financial plan.
Not accounting for inflation - It is very common to consider the expenses based on the cost of living today and decide on retirement needs. However, inflation can drive the expenses higher, making survival difficult in the long term.
Retirement plan withdrawal - One other common mistake is the retirement plan withdrawal. Considering the temporary financial obligations, you might break open the retirement investment fund to satisfy the needs. It can affect your long-term returns largely. You must try managing the financial need from other sources or have a certain emergency fund while planning retirement to handle such inconsistencies.
Retirement solutions offered by life insurance providers have varied flexible features. You can combine savings and investment objectives with life coverage. For example, our TATA AIA provides retirement solutions such as savings insurance plans, annuity options, etc., that help you invest a lump sum or a premium regularly for a limited term or through the policy term to secure your future.
Retirement planning should be done with utmost priority on a comfortable and peaceful life after employment. While it is common to make mistakes, you must be aware of them and make the necessary preparations to avoid them for maximum benefit. We have discussed some of the most common mistakes and how you can avoid them for a long-term retirement benefit. So, be focused, plan to invest rightly, stay invested and be smart at retirement planning!