Planning Your Retirement – 6 Mistakes that You Should Avoid

Published by Sharekhan Education | March 4, 2021

Planning Your Retirement – 6 Mistakes that You Should Avoid

“Have you started planning your Retirement?” read the headline of a popular financial magazine. “Of course I have” thought Sasha. I know how important it is to plan for my retirement. My income would stop; how then would I meet all my living expenses? Can’t take any risk with my retirement, so I am saving my money in bank fixed deposits. In the next 10 years I am sure I will have enough money to retire comfortably on.Besides that I would get my retirement benefits from my employer too. Both these put together I think would be enough to take care of my retirement needs.

Retirement is an important milestone, that period in your life where your active income will stop and you will have to live off your savings& investments. It is a phase where your life will restart. You will get a chance to now fully enjoy those things that maybe you couldn’t, in trying to feed your family and tend to their needs. How many of you would want to live a vibrant life full of vitality and fun? Isn’t it your responsibility then to ensure that you get what you want? It is crucial thus; you plan your retirement keeping all these and more in mind.

Let us understand the 6 mistakes that you must avoid when planning your retirement goals.

1. Assuming costs to be same – this is a mistake that many individuals make. Your retirement would probably be a decade or two or maybe three away so can the costs remain same then? What you spend today will not be sufficient tomorrow. To arrive at the right figure, you need to account for inflation; this will ensure you retain your purchasing power in the long term.

2. Lower Inflation assumptions – this is another mistake that you need to avoid. Accounting for inflation is vital for the success of your retirement plan. For this you need to assume an average rate of inflation.A lower inflation assumption may put your planning off track or may stretch you financially and make it difficult for you to meet your daily expenses in retirement.

3. Thinking you won’t live long – incorporating a lower life expectancy in your retirement plan? Big mistake. What did you think – your retirement would be a period of just a couple of years? Think again. With increasing medi-care facilities &technology you could live longer and your retirement could expand a decade or two or may be even three further.To live a vibrant retired life you need money to last you till your last breath. So factor in a generous life expectancy…if we were to make a suggestion think 100. This will take care of the fear of outliving your retirement funds.

4. Insufficient or No individual health insurance – Yes another big mistake. Many salaried individuals depend on their employer sponsored health plans and forget that once they retire they may lose this benefit. What then? A trip to the hospital then may dig a deep hole in your pocket. So be wise and determine your retirement health care needs and supplement your health cover now. You may take a floater policy to cover your family’s need.

5. Wrong choices of investments – Like Sasha, people generally feel that investing for retirement means parking their money in safer assets like bank fixed deposits or postal saving schemes. This is also a big mistake. The seemingly safer assets like bank fixed deposits etc… due to their lower returns may not grow into the desired corpus. Also these are prone to inflation risk and can erode the purchasing power of your money in the long term leaving you helpless and financially distressed in the slog years of your retirement. You need to thus have a proper asset allocation and invest in assets that are not just safe but also in assets that willgrow your capital and provide a hedge against inflation. So based on your risk tolerance and time to retirement investing in equity will help you meet your goal.

6. Not checking on to your portfolios health – most people start investing but miss out on this important aspect of investing. To achieve financial success and meet your goals it is crucial that you check on the health of your portfolio and take timely actions. Doing so will help identify the red flags and avert any financial disasters.

So in a nutshell planning your retirement is a must. But planning it the right way is critical to enjoy a stress free and vibrant retirement. So watch out for these 6 mistakes and make sure that you don’t repeat them.

Learn stocks trading course, derivatives and trading strategies from sharekhan Education’s online Mastering futures and options trading course.

Happy reading…..