5 Retirement Mistakes to Avoid

"Retirement seems like a long time away. So why think about it and get morose now?"

This seems to be the tendency of most individuals who in the prime of their careers, fail to do enough to safeguard their future. Preparing yourself for a secure post-retirement life is probably the best gift one can give to himself and his family. While retirement planning itself is a long-drawn exercise, here are a few quick tips on some retirement mistakes to avoid:

Having No Plan

• Failing to plan is planning to fail. Chart out a step-by-step action plan with the help of your advisor based on proven financial principles to help you get to your stated retirement goal. Post this first step, also do a periodic review on asset allocation and investment performance as a follow up.

Beginning late in life

• Numerous studies have shown that the more time you give your investments to grow, the bigger the corpus at the end of the period. It is imperative that one begins as early as possible for the ‘money plant’ to grow to its fullest potential. Investors need to remember 2 things here: (a) the power of compounding works wonders for your portfolio, and (b) compounding returns are best experienced at the ‘back end’ of the term (i.e. late ‘into’ the time span).

Putting all your eggs in one basket

• Haven’t we all been guilty of not diversifying our investments at some point of time during our investing careers? It is imperative to spread our portfolio across different uncorrelated assets like Equities (for growth), Debt (for capital preservation) and Gold (for diversification) amongst others. There are 2 benefits for investors: (a) it helps achieve positive returns/preserve capital on the portfolio even when one asset class may have given negative returns, and (b) it helps reduce risk at a portfolio level.

Underestimating the cost and length of retirement

• Inflation over long periods of time erodes the value of money and hence your retirement corpus. Longevity can also play havoc especially at the far end of the period if one has not saved enough. Save in a manner such that it suffices for at least 25 to 30 years.

Not buying (enough) insurance

• While you may be covered during your working career by your organisation, it is critical to cover yourself with both life as well as health insurance post retirement. Buy insurance cover early and continue with it beyond your working years. This is important for your finances which have the potential to get wiped out/fall drastically in case of any unfortunate eventuality. 

PS: The above views are my personal opinion and not of my employer's. Please use your research and consult your financial advisor before taking any decision.

As published in Mint, Mumbai edition on November 7,2017