Pitfalls in Retirement Planning
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Pitfalls in Retirement Planning
Contents |
Starting Too Late
It is human nature to pay less attention to long-term needs while focusing on immediate needs like getting married, having that dream car, buying your first property and so on. But early planning is essential if you want to have a desired retirement lifestyle. The later you start to save and invest, the less time you give your money to work for you. Now you might say there are investment that gives higher returns but they comes with higher risk as well. If the investment horizon is short, it does not allow one to recover from any major investment mistakes. Starting late also gives one, less time to accumulate his retirement funds.
Saving Too Little
Not including our CPF savings, it is found that the savings rates for household has drop from the late 80s of 11% to just 5% in the 90s. With less money saved for retirement, one would not have enough funds for retirement and this problem is further compounded if one is to start late.
Earning Too Little
Investing is to make your money work for you. A common notion is that people equate prudent investing with putting all their money in the savings account or fixed deposits. This is a mistake because at some stage in life, one should invest more aggressively to realise the full potential of his savings. General rule of thumb is the younger you are, the more secure your financial position, the less conservative should be your investment policy. Putting money with the banks can protect your savings in the short term but you are not maximising its potential and you will see the purchasing power of your money being eroded by inflation. On the other hand, putting your money in investment tools like stocks or properties, you stand a better chance of beating inflation and preserving your health, although you need to have a stomach for paper losses (assuming you do not sell).
