August 21st, 2019 | Updated on June 30th, 2022
Retirement, the era where everyone around you loves you, you have grandkids to play with and are living the golden years of your existence!
You’ve worked hard over the last 40 years, and now, you sit back and reminisce your first job in your 20s, right out of your college.
But you’ve not just worked hard. You’ve been saving up for your golden years as well, and luckily for you, you did well. Because, and you’d be surprised to know that, you’re probably among the few to have planned their retirement well and much in advance.
And to those who’re now fretting about their retirement savings, here’s your guide to the 7 mistakes you should always avoid while planning for retirement.
1. Not Starting Early
It goes without saying that the earlier you start, the better. Inculcating the habit of saving early, right from your very first paycheck, is important.
If you start saving right from your 20s, by the time you are 40, you’d have saved up a significant sum of money. Starting early is one of the ways to even out your saving years over income years. If you started saving at 30, that means you’ve lost 10 years worth of interests.
But that’s not something you should sit and rue about. The world of investing works on a small principle – the best day to start saving/investing is today.
So, if you’re late to the party, just realise that you’ve still made it to the party and in order to successfully get out, you need to start putting in money. Today!
2. Lack Of Consistency
Saving can’t be considered a habit until you bring regularity into it. And by bringing regularity I mean that a weekly / monthly schedule that you follow religiously.
Saving regularly is also a method to assess your expenditure and splurges. Consistency helps to maintain and evaluate increments in savings.
And this irregularity brings with it the inability to plan for the future, which, when saving up for retirement, can be a big deterrent.
3. Stacking Up Debt
Debt is an uphill battle that needs to be dealt with in-line with savings. Debt builds over time and so does the interest rate.
Hence, it is probably in your best interest to pay off debt first, then start your retirement plans. Living a debt-ridden life is only going to cause a hole in your pocket, the longer you have it.
Debts from your student loans, a new house, a new car- don’t leave that to be paid off in your yesteryears. As income increases, pay off debts in line with income so that your retirement, and hopefully, your build-up to the retirement, are debt-free.
4. Underestimating Healthcare Costs
Healthcare costs are acutely rising as time goes by and what should not come as a surprise is that healthcare is a major component of retirement. Even if it’s just a stay at a nursing home or even getting a nurse full-time, the costs add up over time.
While planning for healthcare, there is insurance to help you out. And the earlier you get a life insurance, the lesser you have to pay for it – yup, the calculation is that easy yet a huge majority of people still don’t have a life insurance. So if you delay this, be prepared to pay more for your life insurance at a later stage.
5. Forgetting Inflation
Savings account is not a growth vehicle for your money. Money kept in a savings account is not accumulation of cash but it’s actually depreciation in its value.
And investments is the only way to help you grow your money. It is therefore important to account for inflation when planning for retirement.
While it might seem like a lot of work but every hardship you might face in your non-earning years must be accounted for from today, otherwise, rueing your financial decisions, in your golden years, will be what you’ll be left with.
6. Not Diversifying Your Portfolio
Market risk is something you cannot escape as soon as you decide going down the investment route. But what you can do instead, to mellow down your risk, is to start diversifying your portfolio.
And by diversification I mean spreading out your money in multiple asset classes – different categories of mutual funds, real estate, gold, etc.
This way you won’t be susceptible to market volatility over time. Talk to an investment / financial advisor on what instruments are safe and will provide a long term return for your money – that will help you plan your retirement strategy better.
7. Overspending During Retirement
As cliche as this sounds, in your yesteryears, you might land up spending more than saving – which could be really bad for your financial health.
Once retirement hits and you’re free from the 9-5 ramblings, luxurious travels and trips to see your children might be what you want to do… but…did you save up for that when you were building your retirement fund? Probably not.
It is more than important and essential to plan out a splurging retirement because, the fact of the matter is, at that point you’re not earning rather be cash burning.
If you do intend to live a luxurious, happy, lively retirement era – plan for it today. No harm in putting in 20% of your income in your fund versus 10%. Overplanning for retirement is always better than under planning.
The reason we need to save more as we earn more, and age more, is for the simple fact that we spend 60 years earning, on average, and another 30-35 years spending, on a zero income.
By math, you spend 2/3 of your life earnings, so you can live your post-retirement years, the remaining 1/3, in peace and happiness.
And if you now understand the math, make sure that you don’t commit the aforementioned mistakes.
