Top Mistakes People Make With Their Retirement Money

Planning for retirement can be tough, and the stakes are always higher when you’re nearing retirement. Errors in judgment during your retirement planning can hence, reduce the potential of your funds.

Here are some of the common mistakes you should watch out for, when planning for your retirement:

Not Saving Early Enough

The earlier in your career you start saving, the more time your finances have to grow and mature. It also helps you develop a habit for saving that can be healthy in the long run. While you are in your twenties or thirties, you may feel like your retirement is lightyears away, but in reality, with increasing inflation and costs of medical treatment, not starting early can be detrimental.

Not using your PF Correctly:

Keeping a watch on the Provident Fund deduction in your salary is a healthy way to plan for your retirement. Since this deduction is matched by your employer, you could find that your PF account has a large cash reserve, which started when you began your career. So, check your PF account balance regularly, and create a prudent plan for this money.

One of the most common mistakes is to simply withdraw the PF amount for use after retirement. Rather than doing this, it is best if you re-invest the matured amount. One of the safest ways to do so is to invest it in multiple fixed deposits.

In your search for a good company FD online, you may come across Bajaj Finance Fixed Deposits, which provide attractive interest rates, online account management, flexible tenor and more.

Since you will need money for lifestyle expenses post retirement, you can invest this sum into a non-cumulative FD. You can then choose to receive monthly, quarterly or semi-annual payouts to pay for daily living costs once you retire.

Investing only in low-yielding Schemes:

When considering investment options, you have various routes to take. It is important to have a healthy mix of investments and invest in high yielding options along with safer schemes. While you may choose the Post Office Monthly Income Scheme, Fixed Deposits, Senior Citizen Savings Scheme (SCSS) Account and Public Provident Fund, also choose mutual funds and equity.

A healthy mix of investments will enable you to grow your wealth. The mistake you may make is to choose only the safest and lowest yielding schemes for your retirement money, or to invest in gimmicks that promise attractive floating interest rates that dip over time. Ensure that you do your research and consultant an advisor to create a well-rounded investment portfolio.

Not increasing your PF contribution and not creating a PPF account

Usually your contribution to the PF is 12% of your basic salary, and this figure is matched by your employer. However, you can choose to increase this contribution. Any increase in this contribution goes to the Voluntary Provident Fund (VPF) account and is tallied separately. This is not matched by an employer; however, it is a good way to save money and taxes.

Most people do not increase this PF contribution and lose out on higher savings. Secondly, while your EPF is one way to save right from your salary, another way to do so is by investing in a Public Provident Fund. This money is tax-free and gives you high returns when you finally receive the sum on maturity which is usually 15 years. You can also invest this sum in a non-cumulative FD to generate periodic income during your retirement.

Only investing in stocks:

Stocks are often the first choice of investors because they provide sizeable returns in both the medium and the long term. However, stocks can be risky and unstable. This is because they rely heavily on market forces. Hence, while investing in stocks is not a problem, it is important to have a diverse mix and invest in stable options like FDs to make up for any losses.

Not modifying your post-retirement lifestyle:

When you are earning a salary and receiving frequent bonuses, you may be able to maintain a higher standard of living with splurges via your credit card. However, after retirement you will need to be more consistent about your spending and learn to use a fixed sum for a fixed period of time. Hence, it is important to ration and use money wisely and judiciously.

While you may have various plans for your post-retirement years, be it travelling or devoting more time to hobbies, one of the common mistakes you may make is to not modify your lifestyle. These include extravagant purchases of consumer durables or making rash credit card purchases. Keeping a watch over unnecessary costs can help you make the most of your retirement funds.

Be it paying for your children’s education, hospital care, or even financing lifestyle expenses, avoiding these mistakes can help you finance all these expenses with ease in your retirement years.