Top five mistakes to avoid while planning for retirement

Nowadays job stability has become rare. At the same time, life expectancy has improved. So, retirement planning has become imperative. This article informs about five common mistakes in retirement planning and advises the readers not to make these mistakes.

Nowadays retirement planning is becoming more and more important. The job stability or security is gradually going down and the life expectancy is increasing. As a result, people live for a considerable period of time after they stop working. So it has become imperative to make retirement planning for living a comfortable life after retirement/ leaving the job. At the same time, the medical expenses are also going up by leaps and bounds. So every person must start planning for retirement and start implementing this plan as early as possible. In this article, we are going to discuss five mistakes which generally people make during retirement planning. The readers should try to avoid these five common mistakes.

Mistake No. 1: Not preparing a retirement road-map

Have you given a thought about monthly expenditure after retirement? What about taking an exotic vacation in Venice or at Pattaya beach? How much will you require for medical expenditure every month after your retirement? Have you taken into account all these factors while making retirement planning? So, it is very much necessary to create a retirement road map. If a person does not do this, his/her retirement life may become miserable.

Mistake No. 2: Not estimating how much is needed at the time of retirement

Taking into consideration all the factors mentioned earlier and more importantly considering the effect of future inflation, it is necessary for every person to prepare an estimate of expenditure after retirement. After making a monthly and yearly estimate, he/she has to multiply the yearly estimate by 25 (presuming that he/she will live 25 years after retirement). In this way, the estimated corpus for retirement is required to be calculated. This will give a clear idea of the amount which he/she is required to accumulate for a comfortable retired life.

Mistake No. 3: Not starting investment early

This is the most costly mistake people generally make while doing retirement planning. Every person thinks that he/she has enough time to think about retirement planning. This is the terrible mistake for which they suffer during the later part of their service. Ideally, every person should plan for their retirement immediately after joining service. Why? It is because of various factors. The first and foremost issue is compounding factor of money. A simple example will make the concept clear. If a person starts investing Rs. 700 per month for 30 years, he will definitely get more return than another person investing Rs. 1200 per month for 20 years in the same instrument. So we must start early. At the same time, if we start investing early for retirement, we can take more risk at the initial stage. So the return will be more. Finally with the passage of time, a person will have his/her own family and the expenditure will increase by leaps and bounds. So at the later stage, it would not be possible for a person to invest adequately for retirement after completing the family obligations. So retirement planning should be started immediately after joining service and investment must be made accordingly from the very beginning.

Mistake No. 4: Not estimating emergency expenditure

Generally people do not include emergency expenditure or medical expenditure while preparing their budget. That is a major mistake for retirement planning. With the passage of time the life expectancy is increasing but at the same time, the medical expenditure is also increasing by leaps and bounds. It is a thumb rule that if a person lives upto 80 years, he/she will have to incur a considerable amount for medical expenses. So he/she should make adequate provision for the same. This factor must be taken into account while planning for retirement.

Mistake No. 5: Taking risky investment decisions or very conservative investment decisions

While investing for retirement, people make these two types of mistakes. Either they take very risky investment decision or they take extremely conservative investment decision. Both are harmful. At the initial stage an investor can keep 60 to 70 percent of the investment amount in equity. When he/she reaches 30, the equity percentage must be decreased to some extent (say 50 percent). Later when the investor reaches 40, the equity proportion must be decreased further. And after 50, the equity proportion of investment should be around 10-20 percent. In this way, retirement planning must be done and investment should be planned. The above-mentioned approach will give maximum benefit to an investor with comparatively less risk.

As already stated, retirement planning is becoming more and more important. In western countries, this particular branch has become a profession. Many investment experts are working in this field. In India also this trend has been increasing day by day. However, before visiting investment expert, every person should make his/her own retirement planning avoiding the mistakes mentioned above. Later, investment experts can fine-tune the planning.

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Author: K Mohan20 Feb 2017 Member Level: Platinum   Points : 4

Well retirement age is already determined and in government departments those who are about to retire are already informed to give training and awareness program of their duty to the subordinates so that smooth transition takes place. If that is possible, then the retiring person can make contingencies and arrangement to future safety and living of himself or with his family. Now a days there is insecurity felt by the elders that children won't look after them after the retirement. So keeping that in view, investing the retirement benefit with good interest fetching schemes of banks or Post office is desirable and that should get a monthly interest too.

Author: Swati Sarnobat22 Mar 2017 Member Level: Gold   Points : 2

Another mistake anybody can make is not seeking advice from competent professionals. The adviser should preferably be a chartered accountant or reputed tax consultant. The person should also know the tax benefits of his or her investment. Some invest in financial firms that are not reputed or have newly commenced.

Author: Partha Kansabanik26 Mar 2017 Member Level: Diamond   Points : 4

I disagree because of two reasons. In India, qualified investment advisers are very few. And they work mainly for HNIs. Their rates are also very high and advice is not suitable for people from middle class and lower middle class background.

Furthermore, many people misguide common people in the guise of investment consultant and force them to purchase unsuitable investment products. This unethical practice can be very harmful at post-retirement phase. I personally know some people who lost a lot of wealth after their retirement following the useless and harmful advice of so-called investment professionals.

It is much better to study, gain knowledge and invest in a safe and sound manner. No risk is to be taken at mature age (after 60).

Author: Juana05 Sep 2017 Member Level: Platinum   Points : 8

In my opinion one should begin planning for retirement the day one gets a job. A certain amount of money must be put aside towards retirement and invested. This allows the corpus to keep growing slowly, month by month.

1. Investments should be diversified. The key to any good investment plan is to not stash all eggs in one basket. It is prudent to invest the money into different investment vehicles, ranging from low-risk to high-risk investment.
2. Low-risk investments give lower, but (sometimes) assured returns, while high-risk investments offer better growth of your investment, but there are risks involved.
3. Look for schemes where the returns are non-taxable. Indian Post Office has schemes where a fixed sum can be invested without inviting TDS.
4. Watch out for Government schemes that offer higher ROI.
5. Engage the service of a portfolio manager who can guide you on when to exit and reinvest your money.
6. Avoid digging into your retirement fund.

Author: umesh22 Oct 2017 Member Level: Gold   Points : 10

A very interesting and motivating article by the author reminding all of us for early and precise investment attitude for our retirement life. The proportion of various types of instruments out of our savings is also well elaborated.

I want to add here that saving for retirement life is not only a routine saving habit but it is a complete philosophy in itself. The question is how much we should save from our income so that we would be comfortable in that phase of life. From the past inflation trends and other financial indicators, I will say that a person must save at least 40 % of his or her income for the retirement life. This is to be then invested in schemes or pattern as suggested in this article.

Many people argue that if they save 40 % of their earnings they cannot lead a decent life in present time. The argument appears to be reasonable, but I have mentioned it in many forums and again repeating here, that if you cannot manage in 60 % of your earning then you will not be able to manage within any amount. Our needs and desires are endless but we must restrict them to a particular limit set by the boundary conditions of our earnings.

So, for having a respectable retirement life, I feel we must save at least 40 % of our earnings. Another interesting question comes to mind is, if it is so, then how we will manage the marriages and other big functions in our family? The answer is very simple - refrain from pomp and show and do things in simple ways without neglecting the family culture for religious rituals etc.

So 'Simple living and high thinking' is the mantra to be followed today for a comfortable retirement life tomorrow.

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