Retirement planning is one of the most important goals of our life. With increased life expectancy, the number of years a person lives after retirement has increased, making retirement planning more important. The idea of retirement planning is to build an enormous corpus by the time you retire so you can live the rest of your life on that income.
While one must start early, the last 20 years before retirement are crucial. We look at the financial mistakes you need to avoid that can put your retirement planning at risk.
Over-Attachment To Children's Goals: Do not spend on children's life goals, such as their wedding or education, at the cost of your retirement. "Forties is the time when children's education becomes the sole purpose of life. Planning for that will help, but even if there was no planning, do not fund education at the cost of retirement. Education loans are a better option than using your retirement funds," says Renu Maheswari, chief executive officer and principal advisor, Finzscholarz Wealth Manager and a Sebi-registered investment advisor.
Not Paying Off Your Loans: Why you should always pay off high-interest loans like personal and credit card debt before retirement. Also, if you have a home loan, you must pay it off before retirement, as you may find it difficult to pay your EMIs after you retire. Banks will also want you to close your home loan EMI before retirement.
The rate hikes would have increased your home loan interest last year. If that is stretching your home loan beyond retirement, talk to your lender to find out how to close it earlier. While you can pay a higher EMI, you can also prepay a part of your loan yearly and close your home loan on time.
Depending On Insurance Products To Fund Retirement: Do not invest through insurance policies to fund pension and children's future. "These are low-return products that can prove to be a leaking bucket that may result in inadequate funding for all life's essential goals," says Maheswari. Remember that one should never mix insurance with investment, and investing in equities is crucial to create an adequate retirement corpus. In addition, investing in mutual fund SIPs is vital to fund your retirement and other goals because your retirement is still a while away.
Ignoring Emergencies: Financial emergencies can occur anytime, so one must always be prepared anytime. So, it is essential to have an emergency fund that will cover six months of your expenses. If you do not have an emergency fund, you would have to use up your long-term investments in an emergency, throwing your retirement plan off track. It is also essential to review your health insurance. With the rising cost of medical treatment, your existing health insurance policy or the coverage provided by your employer may not be enough.
Not Staying Pragmatic: There is a saying that one has to cut one's coat according to one's cloth. Even in retirement, you have to exercise pragmatism. Reviewing one's finances and setting realistic expectations post-retirement is important. If necessary, one needs to adjust one's post-retirement lifestyle, such as moving to a smaller house or cutting down on spending like travel.
