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5 Mistakes To Avoid In Retirement Planning

Retirement planning is important for a peaceful life in the older years. Make sure you are not making these critical mistakes while planning for your retirement

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Outlook Money
July 24, 2023
5 Mistakes To Avoid In Retirement Planning

5 Mistakes To Avoid In Retirement Planning

Retirement is a reality that has to happen in due course, and so, it’s better that one plans for it in advance. Everyone dreams of retirement when they won’t be working; no more hectic schedules and rush to bother about, only a leisurely life with multiple choices of hobbies to spend time on. While dreaming for such a lifestyle is not bad, it’s equally important to remember that achieving a big goal needs big efforts, and retirement is certainly a big goal in one’s life and there are a few critical mistakes one shouldn’t make. So, here are those 5 Mistakes To Avoid In Retirement Planning.

Starting Late: The biggest mistake one can make in retirement planning is to start late. Starting to plan for retirement while few years are left to it may not help. An early start is vital for making a good retirement corpus with the condition that you keep saving to make this corpus bigger.

Also, if you keep withdrawing the amount kept for your retirement for other goals, such as your wedding, child’s birth and so on, it will drastically reduce the accumulation of the retirement corpus.

Irregular Saving: If you start saving in the first few years of your work life, but stop it in-between, or, even withdraw money from your retirement savings to meet your other short-term needs, it would seriously hamper the corpus size. Compounding can work like magic if you give proper time to the funds to grow.

Though compounding was known to ancient civilisations, it started to be analysed by mathematicians only in medieval times, according to the British Actuarial Journal (2019). The point of highlighting the compounding history here is to affirm its significance in investment, a concept that has been known for so long. Always remember that the longer the money remains invested, the better return it could generate with compounding benefits.

Withdrawing Social Security Fund (EPF): Gone are those days when people would retire from the same job they started their career with. In today’s dynamic world, people change jobs more frequently. But, they need to remember the social security benefits they have in the form of the Employees’ Provident Fund (EPF) where they work. In case of changing jobs, one should transfer the EPF to the new employer rather than withdraw the fund. This social security scheme is aimed to offer retirement security, and if it is withdrawn every time one changes jobs, the fund will not accumulate or grow with the power of compounding. If remain invested, every rupee saved in the fund will continue to grow until retirement.

Avoiding Equity: Many a time, people save only where the return is guaranteed. But one should not forget that inflation and tax are the two enemies of investment and the returns. The portfolio should be balanced in a way that some portion is allocated to equity which in the long term may offer returns higher than fixed-income instruments. So, depending on the age and the risk profile, one should keep reviewing and adjusting the portfolio from time to time so that it can beat inflation and grow consistently. However, equities are riskier asset classes so one may approach professionals for advice about where and how much to invest according to one’s retirement goals.

Ensure Healthcare: Never neglect your healthcare-related expenses, which grow as you get older. Make sure you have a good health insurance policy that covers you for critical illness and is renewable for the lifetime and not just for a few years.

Unlike government employees, private sector employees do not get any health insurance benefits from their employers after retirement. Keeping this in mind and that health insurance premiums increase with growing age, one should take a good medical insurance policy that covers the maximum health expenses after retirement.

 

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