Thursday, February 2, 2012

Retirement Planning Mistakes

[Photo credits: Image by kwerfeldein]

For most people, retirement is probably the best part of  life they look forward to. Yet, many people often make certain mistakes in retirement planning.  In this article, you will find out what are some of the common mistakes made and how you can probably avoid them.

Introduction

Retirement is a time when you will no longer need to work for income and when you can spend time doing the things you like to do, such as spending more time with your family or travelling. In order to enjoy this time it is important to plan properly for your retirement.

The best way to enjoy your retirement is to be financially secure. The only way to ensure that is to start saving towards your retirement fund early, and let compounding returns do its work.  Of course, you will also have to hope that you do not get caught out by any of the common retirement planning mistakes.

Start Early

The sad fact is that to get the maximum benefit for your contributions to a retirement fund, the money has to be in the account for as long as possible. This means ideally starting to contribute as soon as you start work and using 40 years of compound interest to increase the size of your fund.  Many people often think that they have time to spare and only start planning for retirement when it is too late.

The best time to start retirement planning is actually when you have just started work.  By planning early, you will get a good overall idea of how much you need for retirement and how much you ought to save to reach that amount.  Retirement planning and life expectancy also goes hand-in-hand.  One basically needs to know how many years you are expected to spend in retirement in order to save up sufficient money.

Taking Risks and Failure to Diversify

When you are younger it is tempting to take risks with your investment to increase the size of it faster. This will usually give you a bigger return much faster.  However, the downside is an increased risk of the investment going wrong and turning sour. This matters less when you are young as the fund still has plenty of time to recover, but when you are approaching retirement age,  it is best to be more prudent with your money.

At a point about ten years before you are planning to retire, consider moving your funds from a high risk investment to a lower-risk investment. This should reduce the risk to your money and make sure that as much as possible is available for your retirement.

The  mistake that people make when planning their retirement is to put all of their funds into the same place. This might give you the best return on your money, but if it encounters a problem you might lose some, or even all, of your investment. If possible diversify your investment so that the money is in several different places and invested in several different markets to keep it safe.

As people frequently mention, asset allocation is probably one of the biggest mistakes that people fail to take care of when doing investments.  How often it is that we hear about people who are near their retirement and lose all they have because of some risky investment.  This can be avoided if we allocate our assets properly.

Consult Independent Professionals

Can you trust your financial advisor? As well meaning as they might be, your friends, family and bank manager might not have access to the best information or access to the best products for your needs.  While they might be sincere in their intentions, they still might be sincerely wrong.  When you start retirement planning, avoid the common mistake of consulting the wrong people to help you plan your future. The best advice is always available from an independent professional, who will be able to find you the best retirement products for your situation.

Once you have chosen a retirement plan, it is important to reconsider it on a regular basis. Life changes, like getting married or starting a family, will need you to re-examine your situation and perhaps change your investment priorities.

Conclusion

We are all not financial experts, so it is easy to make retirement planning mistakes that will affect the quality of life during your golden years. Get independent advice from experts and diversify your investments to protect your future and make the most of your retirement.

6 comments:

  1. There are certain mistakes people commonly make with their money, and any of them can spell disaster for a retirement plan.

    ReplyDelete
  2. That is true. All along the way, there are mistakes to be made. The worst kinds are those that are made when you are close to retirement. In that sense, there is very little time to recover from your mistakes compared to your younger days.

    ReplyDelete
  3. The mistake that people make when planning their retirement is to put all of their funds into the same place.

    ReplyDelete
  4. The hidden mistakes which are not noticable is GIGO - Garbage In Garbage Out. The inputs, assumptions, etc that are input for calculation is inaccurate leading to GIGO.

    ReplyDelete
  5. Planning for retirement and having mistake is only a little chance.But thanks for sharing it i am glad i read this kind of article.Well done.

    ReplyDelete
  6. Hey! I am glad to stop by your site and know more about retirement planning. Keep it up! This is a good read. I will be looking forward to visit your page again and for your other posts as well. Thank you for sharing your thoughts about retirement planning in your area.
    The Financial Planning activity involves assessing the business environment.
    In recent years, producers such as a financial planner or financial adviser have been available to help clients develop retirement plans, where compensation is either fee-based or commissioned contingent on product sale. Such arrangement is sometimes viewed as conflicting to a consumer's interest to have advice rendered without bias or at cost that justifies value. Consumers can now elect a do it yourself (DIY) approach, given the advent of a large, ever growing body of resources. For example, retirement web-tools in the form of simple calculator, mathematical model or decision support system have appeared with greater frequency. A web-based tool that allows client to fully plan, without human intervention, might be considered a producer. A key motivation beyond the DIY trend is based on many of the same arguments of Lean manufacturing process, a constructive alteration of the relationship between producer and consumer.
    We strive to create a long-term relationship with you because that is what successful wealth management is built upon. We cannot guide you toward financial independence in one meeting any more than a doctor could proclaim your lifelong health in one visit.

    retirement planning lynnfield ma

    ReplyDelete

Popular Posts