Retirement is constantly on the minds of working population, and with the abundance of information available about retirement; one would have thought that planning would be a piece of cake. However, common blunders and mistakes continued to be made by people. Instead of facing it ourselves and learning it the hard way, the more prudent way is to learn from the past errors of others.
With this in mind, we aim to look at some common mistakes in retirement:-
• Delaying retirement planning and execution. Say for someone in his twenties – Retiring 40 years later seems like a goal so far away. However, a quick calculation will allow the common folks to realize that the amount required for retirement is indeed quite a large figure, and it takes time and constant effort to build up this nest egg. Listen to this analogy: You are driving, and currently behind time for a meeting. You might have to drive at 140km/hr instead of 90km/hr now to reach in time. It may be possible, but is both risky and dangerous. The same applies to retirement planning. The gist is to start early since the earlier you start, the more time you have to reach your goal, and at a more realistic pace as well.
• Setting an unrealistic retirement age. Retiring early is an exciting thought, yet it may not be realistic or even suitable for everyone. The younger one retires, the greater amount of wealth is needed to last a lifetime. Compiled with the fact that no one really knows how far a ripe old age will you live to, a strong game plan has to be set in place to sustain you for life after retirement. A good example would be for a friend who retired at age 42. What made him different was that he still had rentals coming in from 3 properties that he has. Many others however realise that they do not have sufficient funds like 10 years after retirement, and have to return to the workforce. By this time, they would have fallen out of pace with the working environment, and even harder to draw a pay close to their last drawn pay.
• Touching the Retirement nest egg. Nest eggs should be kept untouched until the time comes for their fulfilled purpose. Yet, more than a handful of people make the mistake of treating their retirement plan just like a regular savings account. More than often, money that is taken out does not get replenished. Even when replaced, there exists the lost opportunity of the replaced amount from growing and compounding just like the rest of the money.
• Badly diversified investment portfolio. The saying of “not putting all of your eggs into one basket” is easily comprehended, yet so few people are able to follow it. By diversifying, one aims to spread the risks over different financial instruments. You would want a diversified portfolio that will assist you in achieving your financial goals by maximizing your return with the minimisation of risk. It is also important not to be overly aggressive in investing or saving. People who have like 80% of their holdings in stocks, or 80% of their retirement nest egg in regular savings account would not fare too well as compared to their counterparts who has a more balanced mix in their portfolio.
• Infrequent review of investment portfolio. Diversification without constant review of your portfolio is a bad mistake. Risk appetite of a person changes throughout his life. You do not wish to overexpose yourself to too much risks as you age, and of course it is great to constantly check on your financial level of preparation. For example if you are in your early twenties, consider this: 85% equities, 10% bonds and 5% cash. A person on the other hand in his forties may opt to emphasis on safer instruments: 50% equities, 40% bonds and 10% cash.
• Not maximizing on employer matching. Many employers in the market are offering retirement plans with a match program, so do check them out and take advantage of it. This is free money to be taken away, and you do not want to leave them lying on the table.
• Confused by overload of choices. A web of choices awaits you for retirement planning, yet do not be struck awed by them. Take things slowly. Talk it over with your family members. Seek professional help, such as financial planners to help map things out. Make sure you have a clearer perspective than when you first started out. Your life rests in your very own hands.