Retirement planning typically involves building a nest egg large enough to see you through the entire phase of retirement, which may span 20 years or more.
It is always worth paying due attention to the key factors that make investing to this end a success, while steering clear of risks that may impact your retirement corpus.
Impact Of Inflation
While it is certainly a difficult task to accurately estimate the rate of inflation through to your retirement, to overlook it altogether will throw a major spanner in your financial planning. Investments in equity in general have beaten inflation over the long term, and such instruments are what you should aim to induct into your portfolio for suitable returns on this front.
It is also important to note that the effect of inflation continues throughout your retirement life, and your investments should be geared to carry through at or above the rate of inflation to deliver returns that surpass this number across the time period in question.
Risk Vs Reward
Think twice about any opinions suggesting that your retirement savings should be in the safest instruments possible. Such safety is usually accompanied by lower returns, while the long investment horizon looking ahead to retirement means you don’t necessarily have to stick with low returns.
Make sure the returns from your choice of investments protect your money from erosion due to inflation, are suitably diversified, and, enhance the benefits of compounding on your overall financial portfolio.
The Taxation Angle
It is also key to never underestimate the impact of taxation at every stage of your investment plan. In general, you can look to be biased toward those investment products which defer tax until the time of withdrawal, since your corpus expands without being subject to tax.
In financial planning for retirement, set clear goals and pathways that will see you through to this important phase of your life. At the same time, be flexible enough to change your investments in case there may be unexpected life events, or if there are other instruments that become available through your career.