Most working individuals dream about a worry-free retirement without the work pressures bogging them down. However, a successful retirement comes down to how much you have saved up and if it’ll be enough. To ensure a relaxed time after you turn 60 or better, an early retirement, you must avoid some common errors. So, let’s go through the top 5 mistakes that lead to insufficient retirement savings.
- Mistake 1: Thinking it is too early
It is common to feel like you are starting your retirement planning too early as you are in your 20s. But it is recommended to begin saving up for your retirement as soon as you start earning and stay invested for the long term. Are you thinking why? You can build a sizable corpus of savings with the power of compounding that works when you begin early. If you are set to retire on turning 60, you will require 20-25 years to accumulate a healthy retirement sum. In case you save up enough, you can also explore the idea of early retirement.
- Mistake 2: Failing to evaluate your current and long-term financial goals
You might begin contributing towards your retirement corpus based on your current salary. However, as years go by, you are bound to get good increments and promotions. This should also reflect in your retirement fund and lead to an increase in your contribution. Hence, assessing your current as well as future financial goals help greatly with planning for your retirement. You may prefer maintaining a certain lifestyle after you turn 60. Thus, such an exercise ensures you are on track to fulfil the current financial objectives and plan enough for your retirement.
- Mistake 3: Not accounting for inflation and taxes
Many individuals end up falling short of cash during retirement due to factors such as inflation and tax payments. While you are investing in financial instruments to receive a considerable amount on retirement, ensure to account for inflation. Though the saved-up corpus may seem more than enough, in the next 25 years, inflation could be more than the current rate. Also, several investment options could have taxes applicable on the maturity amount, which could reduce your savings. So, it is advised to invest in pension plans that offer you maximum retirement benefits.
- Mistake 4: Making early withdrawals from your retirement corpus
While you are saving up for a financially stable and happy retirement, it is possible to face hardships before that. However, making untimely withdrawals from your retirement plan could be detrimental. These partial withdrawals could burn through your retirement savings and leave you with an amount lower than expected. In case of financial urgency, you could liquidate other investment options or your emergency fund instead of your pension plan. This is why one of the mistakes mentioned was failing to correctly evaluate your financial plans as it can leave you with no backups during dire times.
- Mistake 5: Taking debts with you during retirement
Because you do not have a steady source of income and are dependent on your retirement fund, having debts isn’t favourable. Therefore, it is best to choose a suitable loan tenure and complete the repayment before retirement. In case you believe such debts can be repaid after you turn 60, your family might be at the risk of paying off the loan if something were to happen to you. So, it is advised to plan your loans well in advance.
With this, you must have learnt some common mistakes that you should avoid for a successful retirement. To stay away from financial troubles, you can consider various types of life insurance policies as a backup before retirement!