Myths Associated With Retirement Planning
Retirement is like a long vacation in Las Vegas. The goal is to enjoy it the fullest, but not so fully that you run out of money. - Jonathan Clements
Below are few myths associated with Retirement Planning:
i. You need a large income to be prepared for retirement.
one does not need to have a large income to be prepared for retirement; one must need to be disciplined and start saving early.
ii. Debt is a part of life.
One should have enough money to clear their last debt and have plenty more to survive on. Having debt to take care of when retired is not prudent and it is not something everyone has if they plan ahead.
iii. Assuming your kids are your retirement plan.
People keep saying, "My retirement plan is my children. This may have been the case at one point of time but does not hold true anymore, especially with nuclear families gaining popularity.
iv. Your house can finance retirement.
Treating your house as the ultimate retirement insurance is an easy trap to fall into.
This is as firstly your house is your biggest asset class and takes up over 50% of most people's net worth, and secondly shifting houses at a later age may not be the easiest adjustment to make, especially if it is to a cheaper and smaller place.
This is as in reality it's hard to eat out on your home equity.
v. I won’t live long after retirement.
This is probably one of the most common myths and it is high time people get realistic about it.
vi. I will never retire.
Yes, you will. Everybody has to.
You may want to work till you drop dead, but what if you really cannot get a job after 55? What if your health does not permit you to work?
vii. I am too young to plan for retirement.
There is no such thing as being too young to retire or plan for retirement.
The earlier one starts the better.
One should start early as possible when it comes to retirement planning. The main advantage of starting early is that you can make the most of the power of compounding, which makes a big difference.
viii. Retirement planning can wait till my loans are paid and my goals are met.
It never works like that.
Retirement planning is a part of financial planning.
While we may have many short and medium term goals to look after, it does not mean the most important long-term goal should be ignored under any circumstances.
ix. Retirement money should stay clear of equity.
This is another big mistake that many people make while planning for retirement.
Equity, while being a riskier asset class over the long run, has always provided way better returns than fixed income instruments.
Ignoring this asset class in your retirement plan is folly, as this will help you beat inflation and gain the most out of your savings.
x. My needs post retirement will be limited.
This is a myth and a completely baseless statement unless calculated by you or your financial planner.
Judging how much money one needs post retirement is never easy and one of the best ways to do it is by figuring out what expenses you will have then.
This can be done by looking at your current expenses and seeing what part of it you will need when you are retired.