Retirement planning should be one of your first and foremost goals as an investor. Period.
From the day you start investing, investing in the right funds and starting the process early can turn your retired life joy, independence and freedom.
The stakes at risk are quite high, so one small mistake can have a big effect on the life that you will live after retirement.
There are tonnes of mistake we make when it comes to our finances, saving through only one instrument, having no medicare plan, not paying off debts, etc.
All these mistakes have a quantitative aspect and thus, can be easily identified if you review your investment portfolio from time to time.
The biggest mistake you can make is saving too little for your future.
You might not feel it while you are actively working, but as soon as your monthly cash flow stops, your savings is what you fall back on.
However, not many of us realize this and therefore, we don’t save as much as we should.
In this article, we will talk about 5 of the most common pre-retirement mistakes almost everyone makes.
In this article
5 pre-retirement mistakes all of you will make
1.Forgetting your financial goal
One of the biggest mistakes one can make is to set an investment approach and forget about it.
It’s a good thing that the number of young investors have increased, but, what lacks in the investing approach is that they can’t manage their funds properly.
Very few investors have analyze their portfolio, match it with their requirement and rebalance it whenever required.
Technically, you should keep evaluating your savings plan at the time of changing your job, your risk profile, if there’s a fluctuation in the market, etc, so that you can rebalance your portfolio accordingly.
This will keep you in the loop with what your retirement needs are and how you should plan to fulfill the same.
2. Considering past value as the future price
It is rightly said that one should analyze the future of their stocks before investing in it.
Yes, this is hard.
The past trends and standards don’t decide the future of the stock.
There are various factors like products and services, management and structure of the company that should be considered for determining the future aspect of the stock.
This is yet another mistake which is made by many investors. Due to the lack of proper knowledge, you might judge the future performance of the stock by looking at its past records.
That’s not the right approach.
The low price of the stock might attract you to invest in the same with the hope that the prices will rise as per the historic data.
But, this cannot be the case always. The low prices might also represent poor performance of the company and may keep on diminishing.
In the process, you might suffer a long-term loss.
3. Not optimizing tax benefits
The tax system provides incentives to encourage individuals to save for their retirement.
Not utilizing the tax exemptions to the fullest is a big mistake. Yes, it is!
There are various exemptions available under Section 80C of the Income Tax Act, where you can claim a deduction of up to Rs.1,50,000, if invested in the mentioned schemes.
You should be aware of all the exemptions available so that you can take the maximum benefits available.
Further, the rate of income tax varies with the amount of your earnings. So, you should be able to analyze your future income bracket and sho your investments accordingly to reduce the tax liability to the maximum.
4. Not anticipating post-retirement expenses
Many investors don’t have a clear budget on the number of expenses that might land up when they retire.
Apart from food and shelter, there are various other expenses that need to be taken care of, like traveling cost, health care expenses, etc.
After retirement, the monthly income flow stops, so there can be you will most likely find it difficult to manage your expenses
You must anticipate your expenses accurately after taking the inflation rate into consideration.
Moreover, you shouldn’t underestimate your medical and healthcare cost. With the increasing rate of health care services, it is paramount to stay financially protected.
5. Not diversifying one’s portfolio
Your life changes significantly when you retire because you no longer rely on a paycheck to help you during economic volatility.
A retiree’s greatest fear is a severe market downturn on top of withdrawals.
Therefore, when you retire, you become more conservative with your money, or sometimes more aggressive to fulfill your greed to earn big.
Mainly, investors become either too risky or too conservative regarding their retirement investments. The point to understand is that you need to have a diversified portfolio.
As per studies, retirees withdraw 4-6% of their portfolio every year.
So, you should atleast have a portfolio that grows at the rate of 4-6% per annum or you will start losing your principal investment.
To summarize, many people make the mistake of not taking retirement planning seriously.
Some fail to start saving early, whereas some struggle to save the required amount, while some don’t have the financial literacy to choose the right investment.
To be able to make wise decisions, it is necessary for you to gain financial knowledge.
So, it is advisable to educate yourself with some basic financial knowledge and start saving for retirement as early as possible.
To be on the safe side, keep analyzing your portfolio from time to time and keep a check on these mistakes so that you can have a healthy, wealthy and stress-free life after your retirement.
Disclaimer: The views expressed in this post are that of the author and not those of Groww