The most ignored financial goal: Retirement planning

Retirement is not simply stepping away from work. It is about attaining financial freedom that makes it possible for us to step away from work and enjoy our golden years. Without financial independence, we may work indefinitely to meet our financial obligations. Making adequate financial preparations, however, equips us to enjoy a successful and joyful retirement.

Avoiding common investment pitfalls can help you build a future free of financial worries. By drawing lessons from the experiences of others, you can plan your future better. Below are a few guidelines to assist you through the process:

Link each investment with financial goals

Once you start investing, remember to link each investment to a particular financial objective. This pre-set purpose will discourage premature withdrawals till the accomplishment of the goal. Consequently, you will precisely know the right time and event to redeem the investment you made. Always make a separate retirement corpus, and never use it until you retire.

Also Read | The art of streamlining cash-flows post-retirement

Do proper asset allocation

A well-balanced asset allocation strategy is essential at the planning stage. Avoid having an excessive bias toward one asset class and ignoring others. We usually come across people who invest heavily in one kind of asset only (debt, stock, gold, or real estate) with little exposure to other asset classes. This approach, however, is a fatal error because every asset class passes through its ups and downs. If an asset class is in a downward cycle and you withdraw money, it would lead to some capital or return loss.

Customise your strategy to timelines

An effective retirement strategy is designed based on your current and expected retirement age. The amount of time you have until retirement defines risk taking capacity of your portfolio. If you have significant years remaining to retirement, you can have a higher proportion of riskier investments, such as equities. In the reverse scenario, you should go with limited exposure in equity and more in safer instruments like debt.

Consider expenses while planning

It is crucial to account for your current lifestyle’s costs while planning your retirement. Generally, we see that we spend more on weekends than on weekdays. The reason we do more socialisation, entertainment, and pursue hobbies over weekends. Post-retirement, however, every day feels like a weekend, which will scale up your expenditures.

Contingency fund

Life is full of unanticipated events, and unforeseen expenses may arise without notice. It is wise to prepare for such situations to prevent potential damage to your retirement funds. Planning for these situations by setting aside funds in an exclusive contingency account can protect your financial well-being.

Start Early

Investing for retirement early on in your career can be a game-changer strategy for you. It will give ample time to build a retirement corpus with regular investments of smaller amounts. It allows you to take maximum advantage of the power of compounding. It also enables you to invest in riskier assets like equity and equity-related instruments because time will be on your side to ride out market volatility. Even if you missed the opportunity to start early, remember that it is never too late to begin your investment journey.

Retirement planning must be an integral part of your overall financial plan. Avoid spending from your retirement corpus for other purposes and keep them separate.