3 Big Mistakes to Avoid in Retirement Planning

by Viney Kumar Freelance Writer & blogger

Building a successful retirement plan can be a daunting task for anyone. With so many possibilities and options available, you are bound to make a few mistakes along the way. When it comes to saving for a comfortable life after work, there should not be any regrets. After all, your retirement period is the beginning of living life for yourself.

As far as retirement planning goes, it is very important to have a good strategy in place. You cannot just rely on the money you have put aside and hope that it will work out. Investing in a good pension plan like Public Provident Fund (PPF), Employee Provident fund (EPF) and others is good, but pension plan alone will not suffice towards creating a good wealth portfolio.

You can use your pension plan as a strong base and rely on other investment plans to build the right mix of investment portfolio and in turn, reap greater benefits from it. Try to chalk out the right retirement plan by figuring out how much you will need during your retirement and determine the right strategy of how much savings you require.

The key to effective retirement planning starts from a good analysis of your requirements like day-to-day expenses, medical expenses, etc and allocating the right budget for the same. Take the help of online tools or a professional financial advisor to gain valuable insights.

In this article we will look at the common pitfalls and mistakes to avoid in retirement planning. Here is what they are and how you can avoid them:

1. Double-Crossing your Retirement Savings Reserve

It is often tempting to use up your retirement funds to pay for your child’s educational expenses or wedding expenses. Many tend to undertake this dangerous move in order to help their children. However, it is not recommended as it could make you struggle for funds during retirement. Being old, unemployable and broke is the worst nightmare. Your children can avail loans towards such expenses, but who will be willing to offer you loans in your old age?

Another way you can double-cross or cheat on your retirement plan, is by not increasing your retirement contribution, when you have an increment in your salary. It is the best when your retirement investment contribution constitutes of a certain percentage of your salary. So when you salary goes up, automatically your savings should all go up. By doing so, you will be able to support your retirement and live the lifestyle you want.

For example, if you hold a pension plan for retirement purposes and get an increment in your salary. Consider diversifying your portfolio and invest in a different scheme to save towards your retirement plan.

2. Not Diversifying and Relying only on Fixed-Income Pension Plan

It is always a good idea to spread your investment contributions across a broad array of savings vehicles according to your objectives and retirements. It is not good enough just to rely on your pension plan. Few years down the lane, expenses will increase owing to inflation and you may not have sufficient funds in your pocket.

Relying too much on fixed-income instruments like pension plans, PPF, FD will not yield higher returns. They sure are safe, but when compared to the equity investments like stocks, mutual funds and SIP, the returns can be less.

Don’t shy away from a little equity exposure in your retirement plan portfolio. In the long run it can fetch you greater returns and yield a good retirement corpus.

3. Not Saving Early and Not Saving Enough

Don’t wait until your are in forties or fifties to chalk out your retirement plan. Start retirement planning as early as you can, so that your savings will work harder for you in the long run. The power of compounding interest rates can be unleashed only when you start investing early.

Another grave mistake is not saving enough and underestimating your life expectancy. The average life expectancy of an Indian is 67.9. If you have a healthy lifestyle and have access to right medical care, chances are high of you living longer. So plan accordingly, so that you have enough in your kitty.

Having a proactive retirement plan is key to having a peaceful and content retired life. Plan your finances and make the most out of it. Remember that there should be no questions of could have, would have or should have later.