Retirement Planning: 10 Common Financial Mistakes Not To Make

Retirement planning is not just about saving a fixed amount, it’s also about disciplined financial behaviour over decades. Many people treat retirement as some distant goal and delay planning for it. In the process, they lose out on the power of compounding.

Here are some of those mistakes that you can avoid, which would go a long way in increasing the size of your retirement corpus.

Retirement planning, without a defined goal, makes it tough to estimate how much money you actually need. Most people don’t correctly plan out the cost of maintaining their lifestyle post-retirement, which often results in less-than-enough savings.

For setting a clear and realistic goal of retirement, you need to make considerations of life expectancy, inflation, and future expenses.

One of the worst miscalculations involves healthcare expenses. Healthcare costs are shooting up much faster than inflation, and medical emergencies can sweep away a lot of savings in a jiffy. The thumb rule for any retirement planning is adequate health insurance and a separate medical buffer.

Your life expectancy and overall health have a direct impact on how much you need to save for retirement. Planning a retirement corpus without considering how long it needs to last can leave you financially vulnerable in later years. Starting early and planning for a longer lifespan gives your investments more time to grow.

The choices you make in life today determine the quality of life you can afford to enjoy later. Unchecked spending habits will tend to negate long-term financial security. Choosing a high, comfortable lifestyle on EMIs and loans often leaves little room for savings, whereas budgeting wisely and living within your means helps create a more secure retirement.

Being dependent on only one source of income, like a pension or provident fund, can make retirees a bit vulnerable as far as finances are concerned. It is thus important that you build an extra sources of income, such as mutual funds, annuities, rental incomes or even part-time jobs that can ensure regular cash inflows during retirement.

The tendency to make premature withdrawals from long-term retirement instruments like EPF, NPS or PPF will derail your retirement planning. Early withdrawals reduce the principal amount, which cuts down the power of compounding, therefore limiting long-term growth. Tapping into these funds early can leave you with an inadequate corpus in your later years.

Carrying outstanding loans or credit card dues into retirement can be a big strain. Paying off the big liabilities before retirement will help your savings pay for your lifestyle, rather than service debt.

Neglecting inflation while calculating how much you need to retire is another serious error. Ignoring inflation’s impact on expenses leads to a shortfall in your retirement corpus.

Overlooking the tax impact of your investments means reduced savings over time. A balanced approach, which involves tax-saving options under applicable sections of the Income Tax Act, would help you preserve more of your corpus.

Failing to review your plan periodically can leave you unprepared for changes in inflation, expenses, market conditions or personal circumstances. Regular reviews allow you to track progress, rebalance your portfolio and make timely adjustments, helping ensure your retirement strategy remains aligned with your financial goals.