To craft retirement easy going without any uncertainties about money you need to begin early. Like they say “The earlier the best”. But in case you are little near to your retirement and worry about how things would take course “It’s never too late”, you can still start and compensate.
For example, many of you believe that whatsoever you save during your working life will be adequate for your retirement. But have you accounted for the devil that goes by the name of inflation, which nibbles away the value of your money 24X7? Probably not. This means you will not save enough to be able to continue your present lifestyle in old age.
Not having preparation at all is one of the biggest mistakes because relying on government aid like social security income won’t really be enough. If you are already motivated to actively set some money aside for retirement, here are a few common mistakes you need to avoid throughout the process.
1.NOT MAXING OUT YOUR RETIREMENT ACCOUNTS PPF/NPS
When making retirement contributions, there is usually a limit on the annual amount you can contribute. When you contribute up to that amount, it is referred as ‘maxing out your account’ for the year.
This is good as you want to contribute as much as legally possible each year to boost your retirement savings. Most people will need 1 million or more in assets in order to comfortably retire.
By maxing out your PPF /NPS, and any other investment account, you can help ensure that you reach your goal savings amount sooner.
I understand that it’s not possible for everyone to max out their retirement accounts each year especially if your income is lower, but it is a goal you can work toward. Start small, then make an increase each year until you are contributing the maximum amount for the year.
Cut your expenses and actively work to increase your income by getting raises, starting a side hustle, etc. If you never try to reach the maximum contribution limit, you’ll never get there.
2.NOT UTILISING YOUR EMPLOYER MATCH
This can be a costly mistake when it comes to saving for retirement. If your employer offers a retirement program, ask if they plan to match contributions as well.
At my friend last job, he found out that they offered a retirement plan from an employee. By that time, he only stayed at the job for a few more months so unfortunately, the opportunity to save more for retirement was lost.
At his current job, he made sure to go over the retirement planning options and found out that his company offered a generous match. This means that whenever he contributes a certain percentage of his income, let’s say 4%, the company contributes half of that so they put in INR 0.50 for every rupees.
Some companies will match your contributions dollar per dollar as long as you meet their minimum contribution requirement so this is practically free money you don’t want to miss out.
3.WITHDRAWING FUNDS TOO SOON
Another mistake people make when saving for retirement is withdrawing their funds too soon. Your retirement fund shouldn’t be treated like an emergency fund. Its sole purpose should be to provide you with financial independence in the future. This is why as your account balance grows, you can’t resort to withdrawing the money early and using it, even if it’s for an emergency.
Personally, I view my retirement money as off-limits for now. I would only consider early withdrawals as an absolute last resort if I have no other option.
Yet and still, it’s probably not really worth putting a dent in your retirement nest egg when you can just save the money for those purchases separately.
4.GETTING STARTED TOO LATE
It’s never truly too late to invest in retirement. But in all honesty, you’ll see much better results the earlier you start. Thanks to compound interest, time is on your side when you start saving for retirement in your 20s and 30s.
Someone who starts saving at 25 won’t have to contribute as much as someone who starts at 35. The later you start, the longer you will have to play catch up and may even have to extend your working years to bump up your contributions.
This is why it’s best to get started ASAP, today, as in right now. It doesn’t take that much money to start saving for retirement contrary to popular belief. If your employer offers a retirement options , you can start by contributing 2% of your pre-tax income.
Reign in your expenses and boost your income so you can start saving for retirement as well.
Have you ever made any of these mistakes when saving for retirement?