Common Mistakes In Retirement Planning
Most people now realize that retirement planning is important. Quite a few seminars as well as financial planning sites and advisors have been ‘shouting from the rooftops' about the burning need . So there is really no dearth of information and knowledge about retirement planning among most people. But this certainly does not prevent people from committing certain careless and avoidable mistakes when it comes to retirement planning. It is said that, "Knowing and doing are not the same thing'. You may theoretically know that planning is important, but unless you take steps accordingly, it is of no use.
Here are some mistakes people make when it comes to retirement planning:
1. Starting too late: Being lethargic and sluggish in setting money aside towards retirement when you are young is a big mistake. It robs people the huge advantage of compound interest on money and greatly diminishes the size of the kitty for their retirement nest egg. Procrastination, laziness and sometimes ignorance could be the cause of this, but whatever the cause, such negligence is quite criminal towards one's financial security post retirement.
2. Not taking advantage of 401 (k) plans: Some companies have generous matching plans where the employer matches the employee's 401(k) contribution quantum. Now availing of this benefit by failing to contribute to the 401 (k) is folly when it comes to retirement planning as you are losing the benefit of the matching contribution by the employer which would have swelled your retirement kitty substantially.
3. Taking loans from a retirement fund; A retirement fund should be left untouched solely for the post retirement years. Dipping into the retirement fund is again not at all advisable and is a mistake as you are forfeiting the interest on the mount taken as loan and also depleting your savings which will help you when you cannot earn anymore after retirement. This is akin to cutting off the branch of the tree on which you are sitting yourself, which is self defeating.
4. Putting all eggs in one basket: Some people put all their investment money in one or two schemes or plans without allowing for hedging by diversification. Such a strategy is flawed and very sub optimal as it exposes your investments to unnecessary risks.
5. Cashing it all out: You may have saved up for retirement all your life, but of you choose to cash it when you retire, you are paying tax unnecessarily and also opening up your money to the vagaries and onslaught of inflation. Do remember that money in the bank which has not been well deployed gets de-valued as it is subject to inflation.
6. Neglecting health plans: When you are young, you may not be mindful or careful about your health. For many people, leading a sedentary life bereft of exercise and consumption of tasty by unhealthy fast foods is a way of life. They may not realize the pitfalls of this during youth, but it will certainly take its toll on post retirement health.
Being a little mindful and careful about post retirement planning can really save you a lot of grief later!
