10 Money Mistakes that Can Hurt Your Retirement Planning

It’s important to inculcate good financial habits to secure your future. It’s equally important to avoid money mistakes, in order to keep yourself on track to achieve your retirement goals. Here are some of the major mistakes to avoid for hassle-free retirement planning:
Nov 2022
4 mins read

1. Frequent withdrawals from EPF (Employee Provident Fund) or PPF (Public Provident Fund)

EPF and PPF schemes are designed to promote saving towards retirement. Withdrawals from these avenues are allowed only for specific needs such as children’s higher education, marriage, purchase or construction of house etc. All these needs are long-term financial goals, hence it is important to plan for each of them as part of your investment planning effort.

Tip: You can withdraw from your provident fund corpus if essential, but frequent withdrawals from EPF or PPF would lead to erosion of your retirement corpus, which is not desirable in the long run.

2. Delayed investment planning for retirement

As we start our careers and become financially independent, there are a host of things that we start planning for. Typically, individuals start financial planning for vacations, cars or bikes; many also embrace lifestyle changes such as eating out more often, or partying more frequently. As a consequence, retirement planning recedes in priority, particularly in early parts of your career.

Tip: Investing early on in your career can help you achieve your retirement corpus in a relaxed manner. You give your money enough time to multiply due to the magic of compounding, which typically unfolds during the last few years of your investments and can work wonders for your investment corpus. However it is never too late to start investment planning. If you have delayed it, you can make up by investing more since you have a shorter time till retirement. Seek the advice of a financial advisor.

3. Complacency in following retirement planning goals

When you initially set out on your retirement planning, you are enthused by the idea of eventually building a huge corpus. However, along the way, you lose the drive to keep things going, either due to lack of motivation or simply due to lack of time to focus on building your investments as intended. It is important to inculcate the habit of monitoring your investments consistently and reviewing or realigning investments to stay on track.

Tip: By seeing your money grow at regular intervals, you will be motivated to stay committed to your retirement goals.

4. Ignoring investments in growth assets

Often, many individuals face the problem of sticking to the conventional or conservative investment avenues due to familiarity, convenience and fear of risk.

Tip: Although growth assets are relatively higher-risk, it is advisable to explore them cautiously. You can even consult a professional who can help you build a well-balanced portfolio that aligns with your risk profile.

5. Investing in high-cost products

There are times when you would have invested in a particular avenue without researching much about it. You may have either read about all the benefits and high returns that it has offered in the past or simply ploughed in funds on the advice of a friend who also invested in it.

Tip: The other side of benefits is cost – it is always important to evaluate the costs associated with the products. Costs need not always be in the form of fees, transaction costs etc., they can be in the form of taxes too.

6. Rebalancing your investments too frequently

Reviewing and monitoring your investments is important, and realigning to changing goals is critical to reducing risk. However, frequently rebalancing your investments could lead to higher costs or tax burden which can reduce your overall gains.

Tip: You must rebalance your portfolio only for strategic reasons such as alignment to risk profile and to adjust your asset allocation, and not for any other reason.

7. Not investing in an adequate health insurance plan

Health risks in today’s times are more prominent, and a single illness can push individuals into abject poverty. Many people had to dip into their retirement savings to fund illnesses caused or aggravated by the pandemic.

Tip: It is always sensible to hedge your health risk appropriately by availing of the required quantum of cover. Insurance (life and health) is an integral part of financial planning.

8. Withdrawing all investments upon retirement

Your retirement corpus should be such that the returns generated from your corpus should suffice to meet your household expenses.

Unless there is an emergency or unforeseen event, there should be no requirement to withdraw from your investments themselves. This is a rule that many individuals miss and end up withdrawing from their investments before retirement.

Tip: Ideally, insurance and emergency corpus should be readily available for such situations so that retirement corpus remains untouched for their actual purpose.

9. Giving up on your job without securing your finances

Although it is liberating to be able to pursue something that truly interests you, it may be imprudent to quit your job without securing your finances and having an alternative means of taking care of yourself and your family.

Tip: If you plan to stop working after a certain age, ensure that you have built the required corpus for various milestones including your retirement; so that there is no compromise on lifestyle or goals.

10. Not eliminating debt before retirement

Debt management is key to a peaceful retirement. It is vital that you pay off your debts before you retire. It can be extremely cumbersome to plan for your EMI commitments once you are retired.

Tip: It is always important to reduce your EMI commitments as you approach retirement and aim for a debt-free retired life.
Sound financial planning involves building good financial habits, as well as avoiding costly mistakes. Being alert to these ten missteps will put you on the path to a happy and fulfilling retired life.

PGIM India Asset Management Private Limited
(CIN - U74900MH2008FTC187029)
Toll Free Number: 1800 266 7446
Email: care@pgimindia.co.in
This is an Investor Education and Awareness Initiative by PGIM India Mutual Fund.
All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindiamf.com/ieid.
The information contained herein is provided by PGIM India Asset Management Private Limited (the AMC) on the basis of publicly available information, internally developed data and other third-party sources believed to be reliable. However, the AMC cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance* (or such earlier date as referenced herein) and is subject to change without notice. The AMC has no obligation to update any or all of such information; nor does the AMC make any express or implied warranties or representations as to its completeness or accuracy. There can be no assurance that any forecast made herein will be actually realized. These materials do not take into account individual investor's objectives, needs or circumstances or the suitability of any securities, financial instruments or investment strategies described herein for particular investor. Hence, each investor is advised to consult his or her own professional investment / tax advisor / consultant for advice in this regard. The information contained herein is provided on the basis of and subject to the explanations, caveats and warnings set out elsewhere herein. The views of the Fund Manager should not be construed as an advice and investors must make their own investment decisions regarding investment/ disinvestment in securities market and/or suitability of the fund based on their specific investment objectives and financial positions and using such independent advisors as they believe necessary.