People usually think of retirement as very far away, and because of this, it is easy and common to delay or postpone the deliberate step towards preparing for it. The golden rule here is to financially prepare for retirement and to start on time. The reality is that the financial consequence of not having a proper plan and resources in place before retirement is way more than what it takes to put a plan in place. The earlier one starts; the less amount will be required to put aside periodically and the quicker it is to meet up with the retirement financial target.
Inability to properly estimate the required cost and investments: Another big mistake people make when planning for retirement is having no clue how much they will need when they retire, and therefore not knowing what to save, or if their savings are enough. Over-estimation of retirement requirement makes it more burdensome to start the process while underestimation will lead to insufficient income during retirement. Neither of these two provides the needed peace of mind one should have towards retirement planning. A financial planner will render much help in addressing this to a large extent. A financial planner will help execute assessments of key factors such as the living standard one wishes to maintain during retirement, how much it will cost, how much will be saved, interest rate; inflation and their effect on retirement savings etc.
Determining how to retire in a way that suits you: No two lifestyles match exactly, therefore there is no one-size-fits-all when it comes to retirement. For some, retirement might mean going off work completely while some others might need or want to have something to while away time, keep them slightly active, or earn a little more to clear some outstanding debt obligations, whatever the reason is. It is essential to plan how the retirement will physically play out in a way that is peculiar to you as a person and brings about fulfilment.
Living beyond means: If you cannot afford your lifestyle before retirement, the chances that you will be highly constrained during retirement is very high. How? First, there is a high likelihood that the trend continues till retirement. The additional income required to meet up with such a lifestyle comes most likely from borrowing and it needs to be paid back. Worse still if it accrues interest. Paying back either before or during retirement means having less disposable income to spend. This creates an additional financial burden during retirement because aside from the fact that the already constrained retirement income is insufficient to maintain the expensive lifestyle, a portion of it still goes into debt repayment.
Planning for healthcare: Putting in place plans for eventualities is almost as important as planning for retirement itself. As people get older, they may require care, assistance or increased healthcare services. Having a plan in place for this means less dependency on children, family and friends to cover the expense every time it is required. It also ensures quick intervention and prevents delayed healthcare provision.
Insufficient Savings: Through the Pensions Reform Act, employees are expected to have a pension contributory scheme in place where a portion of their salaries is saved as monthly contributions to the scheme. But what does the contribution amount to at the start of retirement and how much are you entitled to from it? Is it sufficient to cater to your retirement needs? If these questions do not have a specific answer, how well then are you preparing for retirement? It is not just enough to put something away every month as a pension contribution. Saving towards a financial target, a desired lifestyle, will lead to having a more meaningful retirement.
Estate Planning: Estate planning is one where a person takes full account of all his assets and liabilities and entrusts their management to a trustee who executes according to the mandate prepared and agreed with the person. This ensures that when the person is incapable, his wishes are still executed. It also provides an avenue to assign beneficiaries to these assets in the event of the person’s departure. Not having an estate plan in place leaves important decisions to be made by whoever is powerful enough, and many times not authorized, to do so. This oftentimes leads to dispute, unauthorized disposal or mismanagement of assets, leaving immediate family members uncared for.