In an effort to get your retirement planning (or lack thereof) into ideal shape, below enlisted are certain pointers that people planning retirement should avoid:
- Not Maximizing Your Employer Match
If you are fortunate enough to work for an employer that offers any kind of pension plan with a match program, take advantage of it! Once you have vested in the plan (that is, once you have worked in the company for a while to have an absolute right to any share of the account value that your employer has contributed on your behalf), that employer match money is yours, but that is only if you have been contributing to the plan yourself.
If you do not maximize your employer’s match, it meanssetting aside a little amount that could be used to guarantee a kind of financial security and lifestyle in retirement.
- Taking a Loan from Your Retirement Account
Most people treat their employer retirement plan like a savings account if the plan allows for loans. Borrowing money from your retirement savings can be a very expensive mistake and not at all advisable. By the time you pay the money back, the money you took out in the first place loses the opportunity grow and compound.
- Not Diversifying Your Investments.
There an old saying – “don’t put all of your eggs into one basket.” It is a very good advice, and almost unswervingly applicable to your approach to your investment portfolio. It is easy to get caught up in your investments when the market is doing well, and chasing those big returns may seem like a good idea. But without proper diversification, there is adrastically higher risk with only a low possibility of better returns. Now or later, a properly diversified portfolio will help you minimize your risk while maximizing your return.
- Not Rebalancing Your Portfolio
It is important to diversify your investment, but it is equally so to regularly rebalance your investment portfolio as well. Keeping in mind a various factors like inflation, change in lifestyle, impending medical and more, this is vital to do.
- Becoming Paralyzed by Choices
Retirement planning brings into the fold, a lot of questions like “How much money do I need to save?” “How much money do I need in retirement?” “What kind of investments is right for me?” While savings planning is essentially full of significant choices to make, do not allow yourself to be overwhelmed into inaction. Forestalling and inaction are perhaps the biggest mistakes you can make when planning for your retirement. Do not panic and make sure to take things one step at a time. Since time (and its best friend – compounding interest) is your most precious asset, the vital thing to be taken care of is just to start saving and investing into a retirement account, whether it be an employer plan or any other kind of investment. To calculate and work out your post-retirement expenses is decisive to retirement planning. Some expenses, such as those on clothing and entertainment, come down. Others, such as transportation, medicine and insurance, rise up and beyond. Make an addition of all the expenses you are likely to incur after retirement to know how much you will need every month. After that, multiply this amount by 240 to know how much should be your retirement corpus.
A smart thing to do is to buy a health insurance cover that continues till you are 70-75 years old. It is difficult to buy a new one when you are older and not so healthy.