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For many people, thinking about retirement inevitably leads to feelings of great anxiety and emotional stress. According to a recent worldwide study, 88% of Malaysian pre-retirees were worried that they lacked sufficient funds to cater for their day-to-day needs after retirement-which clearly proves the state of unpreparedness among some of us.

Regardless of how daunting it seems, you will have to retire one day and face the consequences. This makes retirement planning one of the most critical financial goals in our lives. If you get it wrong, you may find yourself doomed to a life of poverty, dependence and general financial discomfort in your sunset years.

In order to ensure that this does not happen, you need to avoid making some common retirement planning mistakes that people make. Remember that when it comes to your retirement, mistakes can be very costly and you will not get any second chances. Here are seven retirement mistakes and how you can avoid them:

Mistake #1: Failure to formulate a retirement plan

As the common adage goes, failing to plan is planning to fail. It is imperative that you set your retirement goal, and then formulate a plan of how to attain it. This entails setting financial objectives that are both specific and measurable and then setting in motion a progressive plan to achieve them. Typical issues that you must address as you embark on your retirement planning include making a commitment to saving regularly and setting up of step-by-step action plans that are founded on proven principles and are geared towards financial success. Note that each day that you put off making your retirement plan will be very costly in the long term.

Mistake #2: Having insufficient savings

Every one of us finds saving more money to be a big challenge. We would rather splurge on that luxury sports car or go on an exotic holiday. The choices you make today will certainly have far-reaching implications on the kind of retirement that you will have.
Because of compound interest, making a few seemingly insignificant financial sacrifices can ensure that your life will be comfortable when retirement comes. For example if you saved the money that you spend on that luxury RM10 coffee that you buy daily at 10 percent for 30 years, this will yield a tidy retirement sum of RM600,000 when compounded. In order to save enough money for retirement you must have discipline- but the fruits are well worth the effort.

A useful rule of thumb that you can apply is to ensure that 33 percent (a third) of you salary is set aside for your retirement. Your employee provident fund (EPF) contribution, which comprises of your contribution combined with that of your employer, should account for about 23 percent. The remaining 10 percent can be made up of other personal investments like stocks, unit trusts, private retirement schemes or a mix of investments that yield reasonable and consistent returns with minimal risks.

Mistake #3: Procrastinating

Many people mistakenly think that there will be enough time to plan for their retirement after for instance they buy a home or raise and educate their children. If you are in your twenties, you assume that you still have forty years until retirement, and you put off saving for retirement until you are in your thirties and forties. Unfortunately, that is the time when you have your hands full-when you are paying off your mortgages, trying to clear your car loans or funding your children’s education. Before you know it, you are in your fifties and the time for saving for your retirement is gone.

Time is the most precious asset when it comes to saving for retirement. Consequently, when you delay to get started, you are putting your retirement in great jeopardy. Every delay of six years before you start saving means you will have to save double every month to attain the retirement income that you would have got if you had started on time. Procrastination is a costly and painful mistake since it denies you the advantages of compounding. It is therefore absolutely vital that you start saving now.

Mistake #4: Making a wrong retirement income assumption

A lot of us simply do not know the income levels that we need in order to maintain the same lifestyle that we have now when we retire. Even those people who have an idea will most likely make an incorrect assumption. Making an assumption that is too high will result in setting a retirement goal that appears hard to attain, which will have discouraging effect on the whole process of retirement planning. If it is set too low, this will translate to financial challenges and unfavorable compromises when you retire.

A helpful rule of thumb would be to take two thirds of your last net salary as the income you will need when you retire. But remember that retirees generally spend more money on travel, dining out and entertainment particularly during the early stages of their retirement when they are healthier and have more time. As they get older, the medical bills can escalate. Ensure that you have factored in all the various expenditure elements so that your retirement income assumption is as accurate as possible.

Mistake #5: Ignoring the increase in healthcare costs

People often overlook to include the estimated cost of healthcare when they are calculating their income needs. Planning for the cost of healthcare on top of the normal daily expenses is a huge undertaking. Spending on healthcare is different from other discretionary expenses like entertainment because you have no option but to be treated when you are injured or sick.

Statistics in Malaysia indicate that medical costs are rising by 10 to 15 percent each year-and treating elderly patients for diseases and injuries can be quite expensive. Therefore, having sufficient reserves and a solid medical cover is the best way of ensuring that your retirement is as comfortable as possible. Always make sure that you obtain medical insurance before you get sick. In addition, medical insurance is cheaper when you are younger.

Mistake #6: Failure to make provisions for extended care

It is common knowledge that caring for aging parents requires immense effort, time and money. Due to an increase in life expectancy in Malaysia, more and more people may require extended nursing care in the final stages of their lives. So that you do not inconvenience your family with the burden of caring for you, it is important that you make extra provisions in case you need such facilities as nursing homes, dementia care or even hospice care. The cost of such care facilities may range from RM1, 000 to RM5, 000 each month.

Mistake #7: Failure to revisit and adjust your retirement plan

As you progress through various phases of your life, the different experiences that you undergo may make it necessary to adjust your retirement plan. It is therefore crucial to revisit and update your retirement plan after a number of years to reflect these new realities. For example you may be promoted, your father may require nursing care or you may get a new baby. It is advisable to revisit your retirement after three to five years so that you can make the appropriate adjustments. This ensures that you remain on course for a fulfilling, stress-free retirement.

Conclusion

It is patently clear that a lot of people do not prioritize retirement planning. Instead, they prefer to spend their time and effort researching and planning where they want to go on vacations, how they can buy a new home or how they can finance their children’s education. However, like death and taxes,retirement is inevitable, and it is therefore of utmost importance that you learn how you can secure your retirement plan.

Every single decision you make puts your savings and everything you have worked for in your entire life at risk. It is therefore essential that you learn about these retirement planning mistakes and how to avoid them. As a result, you will hopefully be equipped with the tools you need to effectively and confidently chart the course towards a comfortable and fulfilling retirement.

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