You should start saving for your retirement the day you start working. Most people do not think it is important however, and start saving too late, thus running short of money after retirement. There are many calculation mistakes also you can make while investing for your post retirement needs. Here are some tips to help you stop making mistakes:
Not taking inflation into consideration
Taxation of FDs vs Debt funds
Senior citizen’s saving schemes, post office savings and FDs interest is taxable and thus, a Systematic Withdrawal Plan in mutual funds (debt) is better as the capital gain is charged 20% post indexation, which cuts down the amount you have to pay as tax by a substantial amount.
Underestimating your expenses
Though you may expect your expenses to go down after retirement, it may not always be the case. It’s true that you probably won’t have children’s education expenses and less debt, but there is usually a rise in travel and medical expenses, plus you have to consider inflation. So don’t calculate your expenses on the lower side post retirement.
Withdrawing heavily from your corpus
You should withdraw just enough from your corpus so that you can use your corpus for a long time. Experts suggest that you should withdraw 3-4% per year from the corpus after retirement.
Start saving early
Start saving early as you will be able to put together a better corpus.
Don’t assume your age of retirement
Many factors can influence your age of retirement, some of which are out of your control. Unfortunate layoffs, early retirement or serious health issues might make your retire much earlier than expected. So, investing early is a wise decision, rather than depending on your last years of working life to raise your fund. Also, you need not retire at 62/65, if you feel you can work. Or maybe you can work as a consultant.
Not consulting a professional
Relying on friend’s and family’s advice rather than a professional may not be as useful, as they would not know your particular requirements. Financial planners are not only for the rich, even you can use their services.
Failing to update your plan for retirement
You should have an asset, apart from social security, which is will grow over the years.
Planning for medical expenses
You have to put some money aside for medical expenses, even if you have medical insurance, because there are many things which they don’t cover. You may be even considered ineligible for certain treatments due to the net worth. The best way is to stay healthy with a healthy diet and exercise.
Starting to collect social security early
Instead of collecting social security from the time you are eligible, may actually reduce your benefits. If you wait and collect benefits from 70, say, then you will have a greater initial annual payment. These payments are almost double the amount that you will be paid at 62. Social security offers many benefits, as it is uninfluenced by market risks, subject to almost nil income tax, and the payments are adjusted for inflation.
Not paying off high debts
Retiring with high debt can eat away your funds, so make it a priority to pay off high interest debts from a young age.
Downsizing your lifestyle after retirement, such as buying a smaller house, or reducing the number of cars will also help to free up some much needed capital. Also, never cash out your savings plan when you change jobs, but rollover so that your fund is untouched, and you keep earning a good interest.