12 JUN 2017
Common Retirement Planning Mistakes
Planning a retirement is one of those things which will never come in the priority section of your checklist. Yet it must be understood what we do today will help us to carry on a healthy retirement. Here are a few mistakes we must not make:
1. Not giving much thought:
Is your retirement plan has your own farmhouse? Or maybe an exotic vacation? Or completing a bucket list? It is important to have a retirement roadmap which can help you to know what all things you want to do once you cross the line, how much you need to save and all the goals you have to achieve after retiring.
2. Not estimating amount required:
Although you may love to live lavishly, you shall not be able to maintain the current lifestyle without a large amount. Estimate your expenses, factor in the inflation in the interim period. If you need Rs 3 crore in your bank to live life comfortably even after retirement, you shall have to save a larger amount annually to meet your target. If you’re clueless about the required amount,
you may end up with a substantially smaller fund than your needs.
3. Starting late:
You may start investing at the age of 25 and stop at the age of 35. Or keep a casual approach, started investing at the age of 40 and kept on doing it till you’re 60. And even after this, end up with a lower amount.
This is the magic of compounding. By putting your money to work for itself, your interest generates further interest. This is the reason Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t will pay it.”
4. Not including future juncture such as medical emergencies:
As you grow older, you’ll tend to have more medical expenses. These medical bills can drain out your savings. You must be prepared with emergency funds to help you in your health care while you are getting old. Think through the potential contingencies and plan accordingly.
5. Not Investing in Correct Instruments:
Traditionally, we are inclined to invest in a bank Fixed Deposit which promises a return of around 9%. While it seems to match the inflation rate, we forget to take into account the impact of taxes on our returns. If you’re in the 30% tax bracket, your net return shall fall to a little over 6% - much less than the inflation rate.
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