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On my 30th birthday, I decided to financially secure my future and went to Dad for his advice before I begin this new responsible phase of my life.
He was thrilled to learn my plans and said ‘Poor preparation can leave you penny-pinching, forcing you to seek monetary help, or worse, selling your assets.” Clearly, he concurred with my prudent approach to make timely investments during my working life.
He specifically asked me to be careful when planning my retirement and shared
5 common mistakes people make when planning for retirement. Here they are -
Mistake 1: Not starting early enough and staying invested
The golden rule of retirement planning is to START EARLY AND STAY INVESTED. In this way, your money has more time to grow. Let me give you an example close to my heart. My father and his twin brother Ramesh both wished to retire at the age of 60. Uncle Ramesh, though, started planning quite late. I remember my uncle seeking my father’s advice and both of them tracing their investment journey.
My father started earlier with investing in a retirement plan and accrued higher benefits at retirement. However, uncle Ramesh waited, as many people apparently do, until he was in his 40s to begin, and made sub-optimal decisions in the haste to secure the future income streams.
When you have just started your career, you probably don’t have major liabilities. A large part of your earnings can be saved and invested wisely.
Also, prioritize savings...EARNINGS – SAVINGS = EXPENSES
The older and wiser are often heard advising, “Make a plan to start saving regularly today. And now there are modern planning tools that we never had in our times. Seize the opportunity – consult a financial advisor or use a retirement calculator to know about inflation’s impact on your future expenses.”
Mistake 2: Not assessing your current and future financial goals
Money, or rather the lack of it, causes anxiety at different stages of our lives, and rightly so. The weight of financial pressures is far worse than the challenge of putting a plan in place.!”
1. As you climb the professional ladder, your income and benefits correspondingly increase. With such increases, your contribution towards your retirement fund must increase too.
People also have the habit of redeeming investments to overcome financial difficulties or emergencies. Like my father says, “To get the expected returns on your investments, it is recommended not to make partial or complete withdrawals before the maturity date.”
It seems that an easy mistake people make is to assume they have covered all the bases when assessing their current financial needs and future goals. It is always advisable to seek the views of professional advisors, who are able to spot hidden gaps in your planning that might hurt your financial future.”
Mistake 3: Making incorrect assumptions about future cash flow projections
We know that a retirement plan should include cash flow projections to determine the likely outcome of future goals.
However, these projections make certain assumptions that can hugely affect the result. My father had once remarked, “Spreadsheets may help you save enough, but one also needs a plan for living happy, purposeful lives – one that brings emotional and intellectual fulfillment.” Having unrealistic expectations about financial and personal factors could distort the result. It could translate to facing a far different reality than what the math suggests. The best way to look at things is not to put money into retirement accounts that you are likely to need prior to retirement.
Make sure expenses like higher education, mortgage, loans, marriage, etc. are planned for out of short-term or more liquid investments. Can you imagine the effect of such obligations on your financial health after you retire?”
Inflation will take its inexorable toll on the cost of living, forcing us to spend more in the future. Yet many make the mistake of assuming that invested assets will grow at an unrealistic rate every year. Instead, it is better to be conservative.
It is more likely that by taking such steps, one can enjoy life even before retirement. With smart planning, there lies the possibility of perfectly aligning one’s life and wealth.
Mistake 4: Not knowing how much to save to maintain current lifestyle after retirement
The most important question when planning for retirement is to know how much to save to maintain one’s current lifestyle after retirement. When I was planning I accounted for this so that I do not have to live frugally today.
The greater the amount invested, the higher the effect on your monthly budget. On the other hand, a lower investment amount could mean you may have to cut corners in the future. Additionally, a medical exigency or similar such extraordinary and unforeseeable expense could set back budgets for retirement living, if not considered in the planning
It is essential to know exactly how much you need to save for your retirement years so that you not only maintain your lifestyle but handle all emergency situations without worrying about money and also the present as you take out only what is exactly needed from your monthly income.
Mistake 5: Not communicating with your spouse & legacy planning
My father always opines that “Through much of your married life, work consumes a significant proportion of your time, and you and your wife may grow accustomed to each other’s daily patterns.” Couples planning for retirement, often forget to discuss the impact of retirement on their marriage and the changes in their day-to-day lives.
Men tend to not involve their wives in the investment decision-making of their retirement planning. And in due course, it dawns upon them the relevance of an inclusive approach - involving the lady of the house the family’s financial and retirement planning. Take your wife into confidence; both of you should have a good understanding of how the other pictures life after work. Find common ground and set specific mutual goals.
Most importantly, remember to compromise! Yes, because by avoiding such conversations, you may find out too late that your spouse didn’t share your vision of the future. However, if retirement planning is done mutually, the couple can discuss ways to accommodate each other’s views on retirement life, if different, and live a life of contentment.
“Make sure that both of you are aware of long-term debts such as home loans, property loans, vehicle loans, and investment goals linked with education, marriage, buying a second home, etc.”
While many people take the right steps to prepare for a successful retirement, families often forget to address how assets will transition to the next generation.
Whatever point in life you are at, there is nothing to lose when working with a financial advisor, obtaining quotes and cherry-picking the best financial instruments to structure your retirement planning around.
My search for retirement planning mistakes and the wise words of my father leave two golden rules of retirement planning lingering with me,
1. Start early and stay invested
2. Income – Savings = Expenses
With his blessings and advice, I am ready to plan for my retirement taking into account his precious words of caution. What about you? You can also avoid these mistakes and start retirement planning today!
Disclaimer:
IN UNIT LINKED PRODUCTS, THE INVESTMENT RISK IN THE INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER.
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Unit Linked Insurance Products (ULIPs) are different from the traditional insurance products and are subject to the risk factors. The premium paid in the Unit Linked Life Insurance Policies is subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Max Life Insurance is only the name of the insurance company and Forever Young Pension Plan(UIN: 104L075V03)is only the name of the unit-linked life insurance contract and does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these funds, their future prospects or returns. For more details on risk factors, terms and conditions please read the prospectus carefully before concluding a sale. The past performance of the funds does not indicate the future performance of the funds. You may be entitled to certain applicable tax benefits on your premiums and policy benefits. Please note all the tax benefits are subject to tax laws prevailing at the time of payment of premium or receipt of benefits by you. Tax benefits are subject to changes in tax laws.
ARN:-Jul21/BG/19
