Among the several financial goals in life, retirement planning is the most important. Sustaining yourself after retirement is one of the biggest worries of working professionals. While you are happy that you have planned ahead and have taken precautions to sustain yourself financially, there are many planning mistakes that you can make, which will leave you drained when it’s finally retirement time. To avoid such mistakes, it is better to know them beforehand.
Some planning mistakes individuals commit are:
- No financial investment plan: This is one of the most common mistakes committed by many working professionals. The reason behind this is the common notion that it is too early to opt for a retirement plan. Do not make this mistake as by the time you realize that you need a retirement plan, you would probably be in your late 40s. Financial experts believe that it is never too early to take a retirement plan. Rather the earlier you take it, the more you will save with that plan.
- The 401(K) bucket: If you are afraid of investing in different annuities and insurance covers available in the market, it is better to stick to your normal 401(K) bucket. However, there are people who do not contribute to this retirement option, despite knowing that it is a company provided one. The biggest benefit of 401(K) is that your contribution comes off the paycheck before taxes are levied on it. Therefore, the funds accumulated in this plan are not taxable, making it one of the best retirement plans available in the market.
- Diversification of investment: One of the common mistakes committed by people planning for their retirement is not diversifying their financial portfolio. If you have taken an investment plan, then don’t keep it sitting idle with you. Look for other plans, which will benefit you further. Take the advice of different professional retirement fund advisors for understanding the concept of portfolio diversification. They will help you understand the kind of investments that are most suitable for you.
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- Voluntary retirement: Until and unless it is a health issue, you should not consider retiring before your designated retirement age. The extra years of service will accumulate the necessary funds in your retirement account. The last few years of your service are extremely important when you can look for options that will multiply your cash flow.
- Tax deferrals: Many people do not have any idea about tax deferrals. These are small, but important, tax incentives that you can get on your retirement plan. However, as people are not aware of it, they do not bother to take advantage of these tax deferrals. However, if you do take the tax incentives, it can help save a lot of money. Contacting a financial advisor is a better option to know about these tax deferrals. Once you are aware of these, cash on them immediately to multiply your funds as much as possible.
- The draw rate: Working professionals generally have trouble keeping down their drawing rate on their retirement funds. One of the mistakes committed by people is that their drawing rate is so high that they end up paying a large amount in taxes. It is better to keep the drawing rate as low as possible.
- Source of monthly income: Assuming that their retirement fund will keep them sustained during their retirement years; retirees do not work out a monthly income. This eventually leads to withdrawing funds from their retirement account every now and then. If your company does not have a pension feature, then you can easily go for a DIY pension plan with any well known insurance company. In the lieu of the premium paid by you, they will give you a monthly amount for a designated time after you retire.
Rectifying a retirement plan mistake is not only crucial for your future, but also highly important now. Before you decide to plan for your retirement take proper financial advice to be on the safer side.