Planning for your retirement is as important as any other goal, sometimes more. How much we will require for meeting our post retirement expenses is based on many factors such as your lifestyle, your responsibilities or liabilities etc. In order to achieve this goal it’s necessary that we accumulate a decent corpus which either earns the required income or supplement other resources. Any shortfall can lead us to a situation where we have to forcefully either delay retirement or look at options such as a cut down in our lifestyle. At times this forceful decision can make the life after retirement really painful especially when we have to work just to meet our both ends.
To ensure we can accumulate a good corpus two things are necessary- starting early and a right investment strategy. Even if somehow we delay planning our retirement, the investment strategy is one area which needs attention at all stages of your life – pre and post retirement. Mistakes here can sincerely jeopardize all planning and force you to consider options beyond your satisfactions.
Here are 5 such mistakes which you should avoid when investing for your retirement income-
Investing on Past Performance
Any avenue will have a past history associated with it i.e. the performance. But when you see a disclaimer that ‘there is no guarantee that past performance will be repeated in the future” it is for true. Still most of us make mistakes of choosing asset classes on the basis of past performance expecting the same can be repeated. Many a times we take a risk of not diversifying much and pour all our contributions for those extraordinary returns. Avoid taking such decisions and look at your investing horizon. Expect reasonable returns which can meet your retirement goal. This will help in allocating assets more wisely.
Not Analyzing Cost of Investment
Every investment, especially market-linked, has a cost associated with it. This cost varies among different avenues and then within categories. For e.g. mutual fund schemes by different companies but from same category, will have different expense ratio. On other side cost among ULIPs and mutual funds varies. The high dissatisfaction among ULIPs was the result of neglecting the initial cost associated with the product. Any recurring cost may not matter much when you are investing for a shorter horizon but impact your net returns when the horizon is very long. Then there are additional costs like brokerages etc. when you utilize certain means of investment. All of these will have a bearing on your return generation. Hence, it’s wiser to analyze the total cost in your investment to ensure you select the right avenue and are able to earn the desired returns after factoring in all the cost.
Taking Conservative Approach
I have seen many individuals becomes too conservative as they start approaching retirement. They want to move everything to “safer” instruments to avoid taking any kind of risk. But it is also true that not taking risk is too much risk. Even when you have retired there is always a longevity risk associated with your life. If your corpus is not growing then the sustainability of it will be at risk especially when you reach a stage where physical conditions is not allowing you to work. Similarly at pre-retirement stage a highly conservative approach can lead you to invest in avenues where the returns are lower and may not help you in reaching your target corpus. Hence, you need to consider investing in growth assets even after your retirement to manage inflation and taxes.
Not Taking a Wholistic Picture
There are many issues which may be attached to your finances before you plan for your retirement. For e.g. if you are running a high debt like Credit Card or a Personal Loan then thinking of investing instead of paying the debt may be a bad decisions. Any rise in your debt will impact your accumulations as many a times you have to utilize it to get rid of the high debt. So it’s necessary that you plan your retirement investments by taking a wholistic picture of your finances.
Not Enhancing Your Contributions
It’s difficult to achieve any corpus accumulation with a fixed savings throughout. Your income enhances as you move ahead in life. The requirement of your retirement will increase if there is a substantial increase in your lifestyle. In such situation if your contribution to retirement is not increasing then you probably may fall short of reaching your goal. So you need to continue enhancing your contributions to retirement accumulation as there is increase in your savings and you end your liabilities. In fact, in a good retirement plan you should be maximizing your contributions as you approach retirement. For e.g. you can opt for enhancement in your EPF through Voluntary Provident Fund scheme to ensure you can bridge the shortfall, if any.
For many, Retirement may be a distant goal but it also requires a careful planning to reach your dreams. You want to enjoy social gatherings, spend time with your grandchildren’s and enjoy working for leisure not for money. This can be achieved only if your retirement income is sufficient to meet your living cost. Ensure you take note of these factors and lay a good foundation of long term sustainability of your retirement income.
How you have planned for your retirement?
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