Presently, the average American predicts that they will be retiring at the age of 66. And if you offered to pay them to retire earlier, 25 percent of individuals believe that they will require a minimum of $1 million to live comfortably. Ok, fair enough. But here is the thing. It isn’t about the amount of money that you have when you retire. There’s no good retirement calculator. Your comfort level through retirement depends on how well your strategy for it. Earlier retirement planning makes sure financial freedom by balancing out your retirement expenses with your retirement income, based on your certain needs and wants. Speaking as a wealth management company, here are 3 mistakes you need to avoid while earlier retirement planning:
Retiring Too Soon
Working even some years beyond what you have planned can pay a surprisingly large bonus in retirement security. Social Security defines age 66 as the usual retirement age for many people, but about half of all Americans do not wait that long. You can avoid the earlier-filing benefit reductions imposed by Social Security by working unless your full retirement age (as defined by IRS). At the same time, you can keep contributing to your retirement savings strategy, building more balances that may be put to work in the market. Each more year of working income is a year in which you aren’t supporting yourself by drawing down retirement balances. The upshot is that staying on the job for some more years can boost your income in retirement by one-third or more.
Not Establishing a Solid Retirement Savings Plan
Saving for your retirement is a long-term activity. You’ll spend several years of your life building your retirement savings, which is why it’s critical to have a strategy in place. You need to begin by estimating your every month financial requirement after retirement keeping in mind the size of your family, many dependents you’re probably to have in retirement, as well as the expenses for every person, involving yourself. An instant annuity plan is one such financial instrument designed precisely to meet the financial requirements of people after retirement. With the ICICI Pru Immediate Annuity plan, you’re given a post-retirement guaranteed income for a comfortable life. The Immediate Annuity-Retirement Plan gives you the flexibility to opt for regular or lump sum payouts which let you take care of your day-to-day expenses and notable life expenses like medical expenses, expenses of child’s wedding, and payment of outstanding loans, etc. You can claim tax benefits under the existing rules of the Income Tax Act 1961.
Having Age-restricted Retirement Accounts or Too Many Illiquid Investments
When you are building your wealth, you may commit to illiquid investments such as Private Equity Funds, non-traded REITs, and other alternative investments that are intended to diversify exposure beyond stocks and bonds. However, these investments can come with major restrictions to accessing your capital frequently for periods of 5 years or more. Be careful about what you commit to making cash for retirement is not as easy as requesting your share be liquidated. Likewise, be careful about which assets you plan to tap into in the earlier years of retirement if you are younger than 60.
- Tax-deferred retirement accounts cannot be accessed without a penalty unless age 59 ½ until you meet specific exceptions, frequently associated with financial hardships or life events like home buying or paying for education.
- You may be capable of tap into your work-sponsored retirement account before 59 ½ if you work unless 55.
Not Diversifying Your Portfolio
It isn’t uncommon for a retiree who has worked at the same company for several years to accumulate a big amount of that stock of the company in his/her portfolio. A few retirees select not to diversify because they feel that they know their company the best, as well as others simply neglect to do so. From a diversification and risk management perspective, a retiree’s investment portfolio needs to hold no more than 5 percent ~ 10 percent of anyone’s specific stock, so that one’s portfolio can be protected need an investment goes awry.
Taking early withdrawals from your retirement plan
Taking untimely withdrawals not hampers your overall savings but increases your tax liabilities. Untimely withdrawals from your retirement plan decrease the amount of corpus saved for your retirement. Making these kinds of withdrawals eat into the retirement funds. A good option will be to plan your investments in such a manner that one of them matures right when you hit 40 years of age. That way, you have a good bit of funds coming your way right in time to meet major expenses such as buying a home. Like this, it is necessary to plan your finances for every milestone between now and retirement, so you do not dilute your returns.