When you picture your retirement phase, it should give you happier and safer vibes. If all you can see is unhappy and sad faces struggling to make a living, then trust me, you’re doing it all wrong. The best way to avoid stress about your retirement is by planning for it in advance, at a very early stage of life. Retirement planning helps the investor to live peacefully without any regrets in life.
On the other hand, one mistake in your retirement planning can literally cost you tons of money. Any single error in planning can make you suffer financially and mentally. Therefore, it is advisable to plan your retirement with the help of an expert as he will sit you down and ensure that all your future worries are taken care of. In order to be a pro at retirement preparation, take a look at these common mistakes you should avoid:
7 mistakes to avoid while preparing for your retirement and selecting a pension plan:
- Do not invest in the latter phase of life
Since the last tick of our bucket list is the retirement stage, a majority of people have a very casual and laidback approach towards it. However, this should not be the case since retirement is the crucial stage of life in terms of financial security. In order to achieve financial stability even when you’re sitting at home, start planning at the age of 25 years. Making an early retirement plan will allow the accumulation of funds as well as the generation of higher returns over the due course.
- Do not ignore inflation
Inflation is the biggest fear of every investor for obvious reasons. A goal like your retirement is a long term investment, hence, it is important to understand the impact of inflation on it. The best way to deal with inflation is by calculating the figures during the planning stage. When you do the final calculation, use the real rate of returns and the realistic rate of inflation. Additionally, you can make use of the average of the past few years in order to calculate the impact of inflation.
- Do not withdraw all your EPF savings
The main purpose of the Employee Provident Fund (EPF) is to provide financial security to its investors. Cashing out the entire sum from your EPF savings will derail its sole purpose. EPF savings come in handy at the time of retirement planning as they are tax-free. Even if it is a huge commitment like purchasing a new house, do not withdraw money from the EPFs. In case you have already withdrawn the money, start paying back the sum in a systematic way on a monthly basis.
- Do not turn a blind eye towards PPF
There are other options of investment like direct equity that offer a high rate of interest. But an investment policy like Public Provident Fund (PPF) should not be ignored as it is accountable for tax-free premiums. Due to PPF’s larger lock-in period of 15 years, there is a possibility for the growth of funds. Therefore, see to it that you open an account with PPFs in order to save up for your retirement stage without getting diverted to other intermediate goals.
- Do not forget your health insurance
No matter what your life expectancy rate is, there will be times when you have to undergo a medical emergency. In that case, you absolutely need a health insurance plan that will not only cover you financially but also look after your medical needs. Hence, purchase a health insurance plan at an early stage of life in order to save money at times of hospitalization. In case you do not have enough resources to purchase it, then opt for a mediclaim that provides low sum assured and a top-up cover.
- Do not avoid financial contingencies
The money that you save up for your retirement is exclusively for the retirement phase only. Therefore, to avoid using the retirement funds it is important to build a larger corpus for your financial contingencies. This fund that you raise for your contingency purpose should meet any exigency that has to happen within the next 6 months. As your resources gradually increase, a contingency fund should also be able to manage your medical crisis.
- Do not stress about the money required for early retirement
We all know that only stressing about a scenario never helps. The best way to deal with it is by taking the right actions and then, overcoming it. And so is the case with starting an early retirement. The best way to accumulate cash for early retirement is by adopting the method of compounding. Compounding allows the growth of money for a longer duration of time which means you have to start investing early. You can use a retirement planning calculator to measure your retirement corpus.
Now that you know what mistakes you should avoid while preparing your retirement plan, will be able to speed up your retirement process? Go easy while planning your retirement phase as it requires a lot of attention towards the detail. Take the right expert help and advice while doing so. In the end, we all deserve a long break from the lifelong efforts and work we have done so far.