Retirement planning used to be a lot easier. You worked your whole life for the same company and retired at age 65 with a gold watch and a company pension.
Today it’s more complicated. Most people will change employers many times over the course of their career or work for themselves at some point. At the same time, life expectancy is increasing. On one hand, that means more retirement years to enjoy. But the flip side is that you also have more retirement years to fund.
Living a retired life without enough savings can really be a dreadful experience. If you and your spouse don’t want to be a burden on your children after retirement, it is best to start retirement planning early and stick to the retirement plan by all means.
Don’t make the mistake of relying on others – even if they are your own children – to take care of you when you have reached your twilight years. Why should you rely on others post-retirement when you lived all your life on your own terms?
To live a comfortable retirement life on your own terms, you need proper retirement planning and to achieve that you need to avoid these common mistakes.
IGNORING PRICE RISE
Inflation is a demon that comes down hard on anyone who ignores it. "Since retirement is a long-term goal, it is important to understand the impact of inflation on your financial goal
If you ignored inflation while doing the maths, revisit the numbers. Always take the real rate of return (rate of return minus inflation) while doing the calculation. Also, use a realistic rate of inflation. You can take an average of the past few years. Lastly, don't underestimate inflation. It's better to err on the side of caution.
The only investment that will help you beat inflation and still make a corpus is equity. So you need a part of it in your portfolio. You can not plan for your retirement 20 years away by parking money in FDs only. However, EPF is a great debt portion of your retirement corpus mix.
CASHING OUT EPF MONEY
Many people withdraw money from their provident fund account. This is wrong as instruments such as the Employee Provident Fund (EPF) have been designed to provide financial security after retirement. These are highly useful for retirement planning, especially due to their tax-free status.
It is not good to withdraw money from the EPF, even if it is to make a big-ticket purchase such as a house. Instead, it is better to dip into other savings; EPF should be only for post-retirement years.
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DELAYING HEALTH INSURANCE
Medical expenses rise as a person ages. Many people don't buy individual health plans during their working life as they are covered by employers. This is not advisable as most employers give the cover only till you are employed with them.
You also have the option of porting the employer's policy to individual cover at retirement. But do not depend on group policies after retirement as employers keep changing insurers and so you may miss out on benefits accumulated in the earlier policy such as waiver of waiting period for pre-existing diseases.
It is good to buy an individual health policy early in life. It is not only cheaper but also helps you cover pre-existing illnesses after completion of the waiting period. Moreover, it covers you even after you leave the job or your company curtails the benefits under the group plan to cut costs.
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NOT PLANNING FOR CONTINGENCIES
Your long-term investments are not for meeting contingencies. Hence, all people, irrespective of age and employment status, must build a contingency fund. Ideally, your savings should guarantee you a lifestyle after retirement which is the same as you enjoyed in your working years. This involves high-level contingency planning as your income streams dry up as you retire.
NOT HAVING ENOUGH MONEY FOR EARLY RETIREMENT
Stress is nowadays burning out people at a young age, making them think of retiring early. We come across many people who want to advance their retirement age. But most of the time we advise them to delay the plan if they do not have enough funds to last their lifetime. Early retirement requires rigorous planning for meeting life's goals.
Compounding is a powerful tool (the longer the period, the more the money will grow). If you think you will start saving later when your income rises, you may not be able to save enough. Therefore, enlist a financial advisor, start immediately, evaluate the available savings and protection instruments, calculate the funds required and get down to executing the plan
NOT HAVING ADEQUATE INSURANCE
When a bread earner dies, the whole family suffers a setback. A life insurance policy can take care of the family's well-being in such a case. The question is, how much cover one should have?
The ideal figure is at least 10 times the annual salary. This will give the family a cushion of ten years to adjust to the new financial reality. For example, if your salary is Rs 12 lakh a year, the cover should be at least Rs 1.2 crore.
Another approach is calculating the human life value, that is, the present value of your future income. Don't forget to factor in liabilities such as home loans while doing the calculation.
Buy a term insurance policy as soon as you can. Buy online to save on premium. And do not forget to increase or decrease the cover as your liabilities change.
Retirement is the next great stage in your life, and it can be just as fulfilling and exciting as your younger years. It’s your opportunity to do what you want when you want, whether that means relaxing at home, traveling the world, or reinventing yourself in a new career. No matter where you are on the retirement continuum, you have likely made mistakes along the way. By focusing on retirement planning now, you can feel more confident about fulfilling your vision, whatever it may be. If you don’t have enough saved, it is never too late to start planning.
In addition to avoiding the problem areas above, seek advice from a trusted financial advisor to help you stay—or get back—on track. We are SEBI registered investment advisors and can help you make sound investment decisions - you can reach out to us at firstname.lastname@example.org, to help you make a financial plan for yourself. A lot of information you get daily may be totally irrelevant and can harm your financial interests, if you act on it without considering other factors.