We will be pre-retirees till we don't retire from work-life. In this article, we will be mentioning the significant misinterpretations people make a decade before retirement. We are writing this for people to correct the mistakes without wasting time and build the retirement corpus.
1. Retirement planning is the last priority: It is the most neglected thing for all pre-retirees’ even though it is a fact of life. They think there is much time to retire and it can be planned later. It is advisable to start immediately, now.
2. People retire without planning: Living too long will be risky if one fails to plan and not ready with sufficient corpus to generate month-on-month cash flows during the post-retirement period. Planning well in advance is the wisest thing to do to face life after the cessation of a paid job. People with little blurred vision will be putting themselves into more difficult situations than needed. They won’t be aware of the post-retirement cost of living, corpus needed to generate month on month cash flows, and various options to generate the same. It’s wise to plan and with the help of a financial planner.
3. No clarity on the person's funds will be sufficient: It is advisable to have a piece of professional advice for your investments to tie the loose ends.
4. Portfolio with too safer or too aggressive investments: In the early stages of life, one can go aggressive to get the advantage of the power of compounding and capital appreciation. As retirement approaches, it has to be gradually shifted to balanced and then to debt for capital protection. To avoid such mistakes, one can depend on the help of an investment advisor.
5. Afraid of taking even a little investment risk: People fail to consider investing a little amount in diversified equity mutual funds by SIPs, which can boost their portfolio returns to a greater extent. It is advisable to have at least 10-20% in equity-related investments for capital appreciation and to beat inflation.
6. People keep a pile of scrap investments made in the past: One should not be emotional with the investments (read our article “Know your Investment Behavior”) that are with higher costs, low returns, tax-inefficient, wrongly advised products- all such investments should be liquidated and put into the better yielding products or use to pay off the debt.
7. Taking a considerable risk with investment: Just before retirement, people will be having 100% equity in the portfolio with no debt. (Read our articles Safeguard Your Wealth as You reach your Goals and Portfolio Management tips during the retirement period)
8. Build a retirement house: People will own a plot of land with a dream to build a big house, which will be a bad idea. It is advisable not to incur opportunity costs, instead liquidate it and put the sale proceeds into the retirement corpus.
9. A few people retire even they are in a position to continue working: We never know what requirements will arise in the latter part of life in the future. It can be a disease or disability to any of the family members, which can exhaust financially. So it is advisable to continue working as long as possible.
10. Spending more than monthly cash flows: People cannot cut down the expenses post-retirement and get exhausted with the retirement corpus than expected.
11. Expecting past performance: If investments are made based on past performance, and if return expectation doesn’t meet, corpus growth will be lesser. So while planning, it will be better to keep a little fewer percentage points than past returns.
If returns are as per expectation, increase savings by cutting spending and postpone retirement. If it is another way round, one will have more in his corpus.
By avoiding the above misinterpretations, one can have a comfortable retirement.
Also, read our articles “Best ways to boost your retirement corpus," “Is retirement planning necessary," "Making a realistic and winning retirement planning," “Portfolio Management tips during the retirement period.”
By Team Wealth ATM
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