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6 Biggest Mistakes You Must Avoid While Planning Your Retirement Fund

Planning your retirement fund is one of the crucial decisions that you may have to make during your productive years. Most people who do not realize the importance of retirement planning run the risk of getting into financial troubles during their retirement age. Even those who are aware of its significance end up with an insufficient corpus due to delayed planning. Most financial planning experts opine that you should start planning your retirement immediately after you start earning at a young age. While starting late is the most common mistake made by people, here is a list of six other mistakes that you must avoid at all costs.

Failing to create a proper retirement plan

Retirement planning is not akin to an impulse purchase decision where you simply buy things at random. It should be a carefully evaluated plan that must meet all your retirement goals. While formulating a retirement plan, you must consider various things such as the lifestyle you wish to have after retirement, potential medical expenses, travel plans, properties you wish to have, children’s higher education, children’s marriage, other family expenses, etc. Only when you figure out the answers for all these questions, you can determine the amount you must invest to get the returns you wish to have.

Underestimating expenses

Many people believe that their expenses will reduce significantly when they retire. This may not be true in all cases. It is true that by the time of retirement most people would have taken care of their commitments such as children’s marriage and education. However, medical expenses and travel expenses are likely to significantly increase during one’s retirement years. Even if you have a good health insurance plan, the premium charges will rise significantly during one’s old age. Your retirement fund should have provisions to take care of these expenses.

Failing to consider inflation

One of the common mistakes that people make during retirement planning is that they plan for future expenses based on present day’s cost. Inflation is a major factor that must be considered while planning your retirement fund. Even with a conservative estimate of 5% inflation per year, the costs are likely to shoot up considerably over the course of 25 to 30 years. If you don’t account for future inflation, your retirement corpus will deplete much quicker than expected. This is a scary scenario for anyone in their old age. Hence, it is important to make sure that inflation is taken into consideration while you plan your retirement funds.

Not choosing proper investment instruments

There are different types of investment instruments such as equities, bonds, commodities, real estate, etc. Poor choice of these instruments will result in inadequate fund growth over the years. You can allocate your investment based on the risk you are willing to take. If you are young, you can afford to make high-risk investments with significant allocation on equity shares. However, as you get older, you may increase the allocation for bonds and other debt instruments. Investing only in debt instruments may be considered safe, but it is not such a good idea if you wish for your money to grow over the years. It is always good to have a balanced portfolio in order to ensure sufficient growth.

Not having enough allocation for financial setbacks

During your prime earning years, you may come out of a financial setback by coming up with ways to earn better. However, the same cannot be said for people post their retirement. Hence, it is necessary to have adequate allocation for unforeseen financial setbacks that you may encounter in your old age. Unexpected medical expense is always a threat to your retirement corpus. If you wish to avoid depletion of your retirement fund, you must plan wisely and allocate a portion of your money for unexpected contingencies.

Not having a proper health insurance cover

As noted, medical expenses are likely to increase considerably during one’s old age. If you don’t have a health insurance cover to manage these expenses, you may end up paying for these expenses from your retirement fund. Also, the yearly premiums that you have to pay will be much higher compared to your younger years. By planning for these expenses beforehand, you can ensure that your retirement corpus does not deplete in vain.


The ones listed here are some of the common mistakes that people make when they plan for their retirement fund. An inadequate retirement corpus will force you to re-adjust your lifestyle and make you cut down even on essential expenses. Make sure that you start your investment early and plan your investments wisely. A well-planned retirement fund will accumulate over the years and save you from future financial troubles.



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