To avoid the most critical retirement mistakes, you have to be practical about your plans and think ahead. Unfortunately, it’s all too simple to make the wrong financial decisions when planning for retirement. The HSBC Future of Retirement Study found that while 76 percent of working-age people in India expect a comfortable retired life, only 33 percent are actually putting aside money to fund that phase of life. This shows a huge gap between expectations and reality. People are not planning the retirement finances well and they may be in for a rude shock when the retirement happens.
Here we have shared some mistakes which typically happen in retirement planning, hope this helps in planning your retirement journey by sidestepping these financial mistakes.
Investing in Things, You Don’t Know About
Stay clear of new financing schemes with which you’re unfamiliar. This involves that free seminar about exotic financial products with a dinner thrown in, which could be a scam or a Ponzi scheme. Don’t believe anyone who tries to pressure you into handing over your retirement money. Any reputable financial adviser understands hesitation and reluctance.
Take the opportunity to acquire as much knowledge as you can first, then spend in new areas in little steps, a small amount of money at a time.
Not Estimating Life Expectancy
Investors usually end up targeting a prominent round figure for their retirement kitty. However, some of these people do not take into account life expectancy. What if your vast corpus does not last long enough to support you till your life? It will be a grim situation. Remember, retirement is the only purpose for which you cannot even take a loan.
Not considering proper protection planning
In the 10 years leading up to retirement, many couples find themselves playing catch-up on their retirement savings. During this period, if one spouse dies, the surviving spouse could end up being severely short on retirement savings.
Having the correct type of life insurance and the appropriate amount of life insurance coverage in retirement will accomplish multiple jobs. It can help protect your income, provide tax-free cash flow, help manage taxes, provide peace of mind to families, and even improve the total returns in a portfolio.
Betting on Stocks and not diversifying
Don’t invest a significant portion of your valuable retirement holdings in a stock that’s supposed to be a can’t-miss chance or the near big thing. While professional investors may be able to generate an excess return over a benchmark by investing in a few concentrated positions, common investors should not try to do this. Stick to the principle of diversification. Based on your age, diversify your investment between multiple asset classes, including reliable financial products offering guaranteed returns. You should consider talking to professional financial advisors who will help you understand your risk appetite, plan, and invest accordingly.
Forget Inflation
Very often, investors do not consider the depreciating value of money in the future. They do not count the impact of inflation on their savings and investments. Many don’t factor in medical inflation as in your retirement days, medical expenses may form a significant chunk of your expenses. While calculating your future expenses, you must factor in inflation to reach an amount that would sustain your entire life.
Not managing tax risks
As taxation in unpredictable, tax-free cash flow becomes more advantageous. With tax rates constantly changing, life insurance can also function as a hedge against future tax rate hikes.
When properly structured, life insurance can provide tax-deferred growth, tax-free cash flow, and a tax-free death benefit. The tax-preferential treatment provided to life insurance allows an individual to have greater flexibility over which amount to use during retirement, and depending on the type of life insurance, it can also provide a non-correlated asset to the portfolio providing additional diversification. The tax-preferential treatment of life insurance can be especially advantageous for individuals in a higher income tax bracket or as a hedge against a rising tax environment. Tapping into cash value income tax free can be a great way to supplement a retirement income plan and, at the same time, help manage taxes.
Make sure to check the ways life insurance could fit into your retirement plan with a financial advisor. Not everyone’s needs are the same.
Putting Too Much Money Into Real Estate Deals
Some real estate deals ensure high-percentage gains, but they’re not liquid. If a real estate project goes south, you can do little except ride it out until the property probably sells, and you get some cash back. You could end up with almost no revenue, and an asset that stays frozen until the real estate market recovers or the land is traded or acquired.
Real estate can be an excellent addition to a retirement portfolio when you’re smart about it, but don’t be quick in putting a lot of money in a non-liquid investment over which you have so little control. Consider investing in a real estate investment trust (REIT) instead, or purchasing an investment property with a modest operating account that can take care of problems when they arise.
Don’t gamble with your retirement money. Use your retirement funds wisely and ensure you have a consistent and reliable income stream. Work with a professional to design your financial plan for your retirement and stick to it. Be serious about your financial retirement plan; few mistakes can cause terrible losses, and you may end up losing your financial freedom in your retirement.