The word retirement brings with it a lot of anxiety and worry. The biggest concern of those approaching retirement is creating a balance between the life they live now as compared to the life they want to live post retirement. While the biggest mistake made is not planning for retirement and investing in haphazard manner. We have listed the top seven financial pitfalls to avoid in retirement planning.
1. Underestimating the income required post retirement
A majority of people have no clue about the approximate income they would need to live a financially independent life post retirement. A vague assumption is what people work around which if too high can be un-achievable and if too low can lead to financial crisis later in life. Every individual has different needs and following any general rules can be misleading. Retirees tend to spend on different things and considering their lifestyle, the income needed post-retirement needs to be calculated. This can then translate into annual or monthly savings figures.
2. Not planning for healthcare
In today’s fast-paced life, keeping good health is often a tedious task. With numerous ailments and medical conditions that come with the old age, treatment costs will burn a hole in your pocket, forcing you to break your savings early or avail monetary help around. To avoid such circumstances, it is recommended to avail a health insurance plan that will take care of uncalled medical expenses and hospitalization during your old age.
2. All eggs in one basket
Whether it is Employee Stock Options or sheer trust in a company, most people tend to accumulate large amounts of stocks of select companies with them. They choose not to diversify because they think that they know these companies well. This is a high-risk behaviour and it can diminish other investment avenues. A balanced portfolio of equity and debt can help your investments yield potential returns.
4. Easily accessible funds – What if I need the money?
Retirement planning is effective when the saving starts at a young age. It is a long-term objective and during the course of life, various situations increase the chances of utilising the saved funds. Hence, it is imperative that such investments should have a lock-in period or a penalty for withdrawing before the due date. This acts as a deterrent and helps curb the tendency to break investments regularly.