Retirement planning is a vital task to ensure a financially secure life post earning period. The plan should be such that it should meet financial goals and other requirements easily.
There are many factors related to retirement planning, and it is never too early to begin. Retirement planning depends on how much income you require to live comfortably in your post-retirement years.
Planning the right way will help you achieve your life goals and to lead a comfortable life. Many individual fail to choose the right investment product or the amount and realize it very late. There is no right product for all, it varies with individuals and their financial goals.
Here are common mistakes to avoid while retirement planning:
1) Not considering Inflation
Retired individuals are the most susceptible to inflation rates as there most of the investment are into fixed income.
If the inflation decreases the purchasing power of money and retirees will be able to purchase less with their money than before.
So if your higher portion of the investment is into fixed income, make changes so that your investment rates are not less than inflation rates.
2) Not reviewing Asset Allocation
Asset Allocation is nothing but dividing your investment in a different asset class such as stocks, bonds, cash. Asset allocation is not a one time process and should be changed with income and time. Allocation vastly depends on the risk tolerance and time horizon of your investment.
3) Insufficient Insurance Cover
Having a right insurance is a must during the old age, or else one has to shell out more money to meet the high-cost medical expenses.
Individual must have a term plan as well as health plans even if your company is having cover for you. As insurance may be needed even when you are not working.
4) Neglecting Income Tax aspect
You may loose most of the interest part if you are not considering the tax aspect. Retirement products are taxed differently depending on the investment product and withdrawal procedures.
5) Debt trap
To enjoy the retirement phase one has to come out of debt. Make sure to pay your debt, plan your finances such that, there should be no debt when you enter retirement.
6) No Estate Planning
Proper estate planning is necessary if you want your wealth to be distributed rightly among the family members as per your wish.
7) Not creating emergency fund
The main advantage of setting an amount aside is at the time of need, one need not break the long-term investments made.