5 Retirement Planning Mistakes You Should Avoid

Retirement is a stage that all will reach at some point in their lives. The sooner they have a comprehensive retirement plan in place, the smoother will be their life post-retirement. Along with celebrating the 50 years milestone, you must also reassess your financial situation to ensure that your financial plans are orderly. Putting forth this assessment may hamper your plans of creating a financially secure future for yourselves and your family. While everyone deserves to have a peaceful and secure retired life, choosing the appropriate retirement plan that fits your needs can be overwhelming. It is crucial to begin planning retirement from a young age to avoid the common mistakes people make, as discussed in this blog.

Why should you plan for Retirement?

Retirement planning means preparing for your life after employment to enable you to achieve all your goals and ambitions. This includes setting your goals, estimating your financial needs and investing towards solid savings.

Post-retirement, you will want to maintain a decent lifestyle without worrying about daily expenses. By advance planning, you can set a path to meet your goals by being financially independent. Retirement planning can help you in the following ways:

• To fulfil retirement goals

Retirement is a new phase of life where you can explore new activities, such as pursuing a new hobby, travelling to new places, or starting a business. The right retirement plan can accomplish all these dreams.

• To fight inflation

In India, inflation can impact your standard of living. Through retirement planning, you can invest early and boost your savings to beat inflation.

• To leave a legacy

After you have worked your entire life for your family, you will want to secure the lifestyle for them even in your absence. When you plan and save for retirement, you can also leave wealth behind for your family.

• To continue the standard of living

You will wish to continue your current lifestyle post-retirement as well. When you are working, your monthly income covers your expenses, but after retirement, your plan can cover these expenses.

• To prepare for emergencies

You will not want to depend on anyone in case of financial or medical emergencies. With the right retirement plan, you can create an emergency fund that can help you be ready for contingencies.

Advantages of Retirement Plans

Understanding the advantages of retirement plans is crucial for financial stability. By investing wisely, you can enjoy peace of mind and financial independence after retirement.

• Lifetime Returns 

Retirement plans such as annuity plans can provide you with income for life. You may choose to invest as a lump sum or in regular intervals to secure your financial independence for life.

• Regular post-retirement income

A regular income flow after retirement can be made possible only through a retirement plan. The fixed income from a retirement plan is an ideal substitute for your pre-retirement salary. You can utilise these funds for daily expenses such as groceries, electricity, and water and meet your post-retirement goals such as travelling. 

• Tax Benefits

A retirement plan can fetch significant tax benefits. The premiums paid towards the plan are eligible for a tax deduction of up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act.

Five Retirement Planning Mistakes to Avoid

Retirement planning can be complex and requires strategic decision-making to avoid common pitfalls. Five key mistakes to steer clear of include not formulating a concrete plan, starting the process late, retiring with unresolved debt, poor assessment of financial goals and cash flow, and underestimating future healthcare expenses. Recognising these mistakes early on can help you navigate your retirement journey with greater confidence and security.

• Not having a solid plan

To ensure financial safety and security during your most important years, you need to have a solid retirement plan. Since it is a long-term solution where you will accumulate retirement for many years, a proper strategy must be devised. A proper annuity plan must be chosen to get regular recurring payments for a set period or for the rest of your life. The plan must consider your planned retirement age, anticipated life expectancy, location, lifestyle, financial position and general health. You can regularly modify your plan according to changes in your present and future needs to avoid running out of funds in crucial times. 

• Not being diligent 

You must start saving for retirement as soon as you begin earning. Assuming that you will begin your career around 21 to 25 years of age and retire around 60, you will have 35 to 40 years to save a sufficient amount of money. Additionally, you will not have major liabilities when you have just begun your career, enabling you to save and invest a major portion of your savings. Returns on investment and savings are the only source of income for your retirement period. Hence it is imperative to start saving early to create a substantial pool by the time of your retirement. Moreover, the earlier you plan your retirement, the sooner your chances of retiring early. The current Indian population is considering this fact and is open to early retirement planning when compared to the older generation. 

• Retiring with debt

Having a huge debt at the time of retirement is not a favourable scenario, and carrying forward multiple debts into your retirement can have a negative impact on your savings. A car loan or a credit card debt can even bring down all your retirement savings and emergency funds within a few years post-retirement. Moreover, a debt during retirement with a limited funds pool and no proper income source can add pressure and disrupt your supposedly peaceful years. Hence, you must pay off all your debts before retirement via your regular income sources to avoid last-minute withdrawals from your life or retirement savings.  

• Improper assessment of current and future financial goals and cash flow

The sudden weight of financial pressure is more difficult to manage than the challenge of having a plan in place. As you progress in your profession, your income will correspondingly increase. With every increase, you must also increase the contribution towards your retirement funds. Avoid redeeming investments or making partial withdrawals before the maturity date to manage financial contingencies. 

A good retirement plan must also include cash flow projections that can meet the goals. There must not be any assumptions or unrealistic expectations regarding the cash inflow after retirement. Avoid putting money into a retirement account that you may need before retirement. For instance, expenses such as education, loans, wedding, mortgage, etc., must be planned with the help of liquid, short-term investments. You must consider inflation, be conservative and not assume that invested assets will go at an unrealistic pace every year. 

• Underestimating healthcare expenses

The late 50s and early 60s is the average age for retirement for the Indian working class. During these years, you must invest sufficient time and money to take care of your health and reduce health-related expenses. When you grow older, you will be prone to illnesses that may incur significant expenditure. Long-term hospital care and annual checkups can cause a significant dip in your retirement funds, causing you to run out of funds sooner than expected. So, always remember to take a lifelong health insurance policy that can cover all your medical expenses. 

A family history of diabetes, hypertension or cancer could increase your chances of acquiring these illnesses. Your employer may not provide medical cover after retirement. So, apart from your employer's Mediclaim policy, ensure to take an independent Mediclaim plan when you are young and healthy.

Conclusion

You must remember to avoid the above mistakes in retirement planning that can ruin your expected retirement corpus fund and have a relaxed retired life. To have a peaceful retired life for you and your spouse, ensure that you have a full-proof and futuristic financial plan. 

FAQs

What is the ideal amount I will need for retirement?

The amount you will require for retirement will depend on various factors such as:

• Retirement age
• Health and lifestyle
• Any liabilities and loans
• Retirement goals
• Any specific commitments to fulfil

What are the main steps towards planning for retirement?

• Set a target retirement age
• Recognise your retirement goals
• Calculate the amount you will need to meet these goals and include inflation
• Choose the right retirement plan that can help you be financially ready to meet your goals

How can I ensure that my retirement savings will help me throughout my lifetime?

You can buy a retirement annuity policy that offers you a fixed income for life that is paid until you are alive.

Can I adjust my retirement plan at any time?

Yes. You may plan to retire early, or there may be changes in your post-retirement goals. You must regularly review and modify your retirement plan to align with your changing requirements. 

When should I begin planning for retirement, and how much do I need to save?

You must begin planning for retirement as early as possible. The amount you must save will depend on your goals after retirement.