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10 money mistakes people make after retirement.

10 money mistakes people make after retirement.

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People work hard for a few decades of their life and wish to go easy after retirement. The whole life especially the younger days has been spent in struggle resulting in a lot of stress. By the time of retirement, most of them have completed their responsibilities like the education of children and many would have got their children married. They now wish to lead a life free of worries and which they would have often dreamed of during their working days. But is a dream retirement ever possible without the finances being managed properly? There are some money mistakes that people make in their retirement which should be avoided to lead a happy retired life.

1) Not making changes in their lifestyle-

Before retirement, there was a regular flow of money every month as a salary. Many of the events and dining outs were organized by the office. Now no one sponsors eating out at costly restaurants and you have to often spend the same amount of money from your own pockets. Even though they may not be getting a salary some people keep spending the same amount of money on clothes and entertainment. If you don’t have a sizable amount of retirement benefits and a secure pension you have to take care of all the medical bills and family expenses. So it is always better to cut down on the expenses according to the retirement funds you have accumulated, otherwise, at a later stage in life you will have to depend on your children and they may not be too eager to support you.

2) Not having a plan-

After retirement you may live for 20-25 years or some may even live longer. As it is you are no longer earning money and are living out of the investments and savings you have made earlier. Do you have money to survive for such a long period? Not having a plan and leaving everything to God does not help. If you think you will not be able to manage for the next few decades then you can do a part-time job or even try to run a small business from home. Calculate the retirement benefits you will receive so that you are not surprised later on. Make out a retirement budget so as to be able to manage the expenses.

3) Purchasing a new vehicle and going on expensive holidays-

When you are flush with retirement funds it may get tempting to purchase a new car. But it is always wise to keep the old car unless it is giving you lots of problems. The car can be used for a few more years and the money saved can be used to make investments that would be beneficial to you in the longer run.

Similarly, now that you are free you may be tempted to go on costly vacations. You must go to holiday destinations that suit your budget which should not be a drag on your resources.

4) Failing to keep a balance between conservative and aggressive investments-

Do you think you have enough money to live a balanced retired life in case you are not getting a government pension? Some individuals may be too worried about the volatility in the equity market and may keep all their money in debt instruments which may not be sufficient to beat inflation in the later stages of their retired life. It is always better to invest a part of your savings in equities even after retirement as the return is often higher.

The other case is where people invest all their money in equities and due to the volatility in the market, they encash at the wrong time, often losing money. If you can’t manage the portfolio it is wise to talk to a financial planner who will work out the amount of money to be invested in debt and equity.

5) Not utilizing tax breaks efficiently-

There are many taxes that consume large amounts of corpus from your savings and affect the retired life. The tax burden can be reduced so that you have a substantial amount of money in retirement. The basic exemption limit for senior citizens is Rs 3 lakhs and with the exemption under section 87A of the income tax, the tax liability can be reduced to zero for income up to Rs 5 lakhs. Even income above Rs. 5 lakhs can be managed efficiently under section 80C of the I.T. act, which includes premium payment under a life insurance policy, senior citizen savings scheme, and senior citizen fixed deposits.

An individual can maximize tax-free income by investing in tax-saving plans that offer EEE (Exempt Exempt-Exempt) benefits that come by investing in EPF & PPF, life insurance plans, and ELSS.

6) Not managing debt carefully-

It is always wise to finish off your debt before retirement or minimize it, as reducing the loan keeps the expenses down when you are not earning money. Clear off the credit card debt as much as possible before retirement and even if you use a credit card ensure that you don’t overuse it. Find ways to clear off the car loan or the mortgage so as to further reduce your debt burden.

7) Not factoring in the medical costs-

No one can predict what illness you will encounter in the future and what would be the expenses required for treatment. It is good to have medical insurance and include the premium in your budget. Besides this, there would be prescriptions that would not be covered by the insurance. You may fall sick often and may have to visit a doctor, so do consider all these things in your plan.

8) Supporting adult children-

In your retirement you have to depend on your savings and your ability to earn more money is reduced with age. It is often hard to say no to your adult children. Parents may square off the educational loans of their working children, pay for their international holiday or insurance, and even their bills. When their irresponsible children default on credit card dues they offer to help and many parents support in the down payment of the house or car.

This way the parents are stretching their own finances by helping their children and many times may have to sell their assets at an unfair price. They can come under stress themselves when they need the money. Moreover, the children will not take their own life seriously and continue to make careless decisions. They know that they can fall back on their parents.

The assets and money have been created by you by working hard throughout your life and you should make the children understand that you will spend in the manner you deem fit and not always fall into their demands.

9) Investing too much in properties-

People wish to live in the best of places and always try to purchase property to enhance their social status. The result is that they buy a costly home and keep on paying interest all through their lives with very little cash to spare. There are many costs associated with a house and that can be a maintenance, repairs, and annual taxes. In your old age, you will have to run around a lot for repairs and if you have a couple of properties it may become difficult to manage. So if you don’t have a comfortable retirement corpus you can consider moving to a smaller house and invest the remaining money in suitable instruments to support you during retirement. 

10) Falling for scams and fraud schemes-

There are many scammers out there in the world to rip off your hard-earned money and retirees are often targeted by them. They will lure the persons with schemes that promise to multiply their investments at a fast pace. It is your duty to do thorough research on what these people are promising so as to not fall into their trap. You can search on the net or take the help of your friends or children to know the fact.

The money mistakes that people make in retirement have been discussed and it is the duty of retired individuals to protect and invest their money wisely so that it can last them for their complete life. Being aware of the investment avenues will make life comfortable and they will not have to depend on anyone for their financial needs.

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