We all make mistakes, but learning from our mistakes and identifying what mistakes to avoid can make a big difference. Here are six common mistakes people make with retirement planning that you should avoid.
1. Not maximizing your Employer Retirement Scheme. If you work for an employer who offers an EPF or other retirement plan take advantage of it. This is the best return on your savings that you’ll likely find. By not maximizing your employer’s retirement Scheme is leaving money on the table.
2.Taking a Loan:Too many people treat their retiremnt plan as saving account if the plan allows for loans to be taken out.Borrowing money form your retirement savings cab be a costly mistake.The money you take out doesn’t have a chance to grow and compound like the rest of the money.While you pay yourself back the interest , it generally doesn’t make up for most of the time lost.Also,if you leave your job before repaying the loan,it may count as a distribution if not paid in full.This means paying taxes and possibly a stiff early withdrawal penalty.
3.Not diversifying your investments. Don’t put all of your eggs into one basket. Sound advice, yet people often don’t follow it. 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. Without proper diversification you are subjecting yourself to higher risk with only a potential for better returns. A properly diversified portfolio will help you minimize your risk while maximizing your return.
4.Not rebalancing. While diversifying is important, it doesn’t do much good if you don’t regularly rebalance your portfolio. Over time, your portfolio of 50% stocks and 50% bonds probably won’t be the same as when you started. If stocks experience a period of significant growth, the stock portion of your portfolio will grow while your bond holdings may only grow slightly. This disparity could turn your portfolio into a 70% mix of stocks and 30% bonds. This portfolio is now significantly more risky than your initial 50% mix.
5.Cashing out. Many people decide to cash out their employer retirement plan when they leave the company, which is a bit mistake. This distribution becomes fully taxable. For some people this means nearly cutting the account value in half! When you leave an employer, you should consider transferring the EPF to your new employer. This eliminates any current taxes or penalties that would otherwise apply.
6.Paralyzed by choices. “How much money do I need to save?” “How much money do I need to have in retirement?” “What investments are right for me?” Retirement planning is full of important choices to make, so don’t be forced into inaction by them. Take things one step at a time, and don’t let the sheer number of choices stop you from moving forward. Time is a valuable asset; don’t let it go to waste.
Article Source:www.Financialplanning.in
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Planning becomes necessary in the lives of all those people who have managed to earn significant portion of wealth. What do you think is important when planning for retirement in terms of financial planning?
Importance of Planning for post retirement life has increased because of increase in longevity.You do not plan for 5-10 years but 20-25 years of life where you do not want to earn.Someone who has created significant amount of wealth and wants to plan for retirement has to consider following points:
1. Identify needs very clearly and make provision for any uncertain expenses which can arise in future.
2.Due to inflation the value of money erodes.Hence the wealth need to earn a good amount of returns, even after retirement, to counter it.
3. Allocation of assets to right investment vehicle is important.Since retirement carries risk of living too long, long term asset classes like equities cannot be discarded totally.Have a decent allocation towards them.
4. Protection of wealth is very important hence follow only asset allocation approach and avoid attraction towards high risk products.
5.Review you retirement needs at a defined period regularly and realign your asset allocation accordingly.
6. Re-balance your investments regularly to keep your asset allocation intact.
7. Have a proper estate planning.