When you think of retirement, you may want a comfortable, post-retirement life with complete financial independence and no debts. It should be all about pursuing the activities of your interest and living peacefully with your loved ones.
But living this life in real is easier said than done. To ensure that you live a post-retirement life, the one that you always envisioned for yourself, you must plan this phase prudently to meet the expenses. Here are six common mistakes that you must avoid while planning your retirement:
1. Delaying Saving
Delaying savings can be damaging for the retirement fund. Instead, you must start saving for your retirement as soon as you get your first salary. Delaying the savings for later will defer the accumulation of funds meant for financial support during your later years.
Streamline your expenses and give top priority to savings, however meagre they may seem to be in the beginning. Even smaller savings can grow to a large extent over the years. Ideally, 12% to 15% of monthly income should go towards retirement corpus, which would accrue to a sizeable amount with the power of compounding.
2. Lack of Financial Planning
Lack of financial planning may sabotage your retirement plan to have enough funds for a comfortable living. Plan your income, expenditures, and investments in sync with future times.
Also, update your financial plans as per the needs of different phases in life. For instance, once you’re married, you may need to account for additional expenses of your spouse and children.
3. Reckless Investments
Investment is the fiscal shock absorber. Be wise in picking the right investment plans with a reasonable risk appetite. Do not refer to unreliable sources that suggest investing in ‘high yield investment plans.’ Take thoughtful and informed decisions before investing your hard-earned money which will directly impact your retirement fund.
4. No Tax Planning
If you are not considering your tax bracket during retirement years, you are making a grave mistake. Your tax bracket may flicker during retirement years, so invest strategically. Look for the plans where the taxes will be paid in advance with tax-free withdrawals in the later years.
This will safeguard your investments as well as your earnings. Be aware of all the sections under the Income Tax Act that enable you to save tax on your income. 80C, 80CCD and 80D are some of the most critical sections that allow you to save tax.
5. Not Foreseeing Health Costs
Your health care will need utmost attention during retirement years. Not considering health expenditures may topple your retirement fund and dent your savings. Remember, the medical plan may not provide comprehensive coverage for healthcare costs. So, keep supplemental insurance as a backup retirement plan.
6. Early Withdrawals from Retirement Fund
Withdrawing prematurely from retirement funds will disrupt the overall savings and deflect the tax liabilities. Untimely withdrawals reduce the corpus size, and it may not be enough to meet your post-retirement expenses.
While working hard on your career path, you might encounter a few hiccups. However, keep on building a stable corpus to meet your needs after retirement. Start saving and choose the right retirement plan after consulting a financial expert.