5 Worst Money Mistakes That Will Make You Go Broke Post Retirement

By | June 23, 2017

5 Worst Money Mistakes That Will Make You Go Broke Post Retirement

Money rules our world and we work hard to earn money throughout our life. We work five to six days a week and constantly strive to save money for the future. One such important future milestone for which we save religiously is, retirement.

A lot of us invest in retirement plans so that we have enough money to lead a comfortable post-retirement life irrespective of inflation and increased cost of living. Considered to be your golden period, retirement is when you can finally hang up your boots and relax without worrying about work or earning money.    

While retired life may sound like a seven day weekend, things can go downhill very quickly if you are not careful financially. In recent years, there has been an increase in the percentage of retired professionals going broke and being forced to work again. Apart from rare cases of medical emergencies, financial mismanagement and carelessness are some of the prime reasons why people struggle financially post retirement.

Additional Reading: Your Guide To Retirement

Here are a few financial mistakes you can avoid if you don’t want your retirement bliss to end:

  1. Living life king size every day: Imagine this: Mr. Mehta retired recently with healthy savings to meet his monetary needs for years to come. While his job status changed from working to retired, his spending habits did not change. He still shopped a lot online, went for dinners with family and friends every weekend, and lived the same king size life that he could afford while he was working. However, a few years down the line, his savings started to diminish and he didn’t have enough money to bail him out when a financial emergency arrived. 

The moral of the story is that you have to change your lifestyle with time. You cannot afford to lead the same carefree lifestyle once you have retired. While one doesn’t need to indulge in rigorous cost cutting, one needs to prioritise basic needs before wants.

Giving up your old ways of splurging money and leading a frugal lifestyle is probably the best post-retirement advice ever. This doesn’t mean that you shouldn’t have fun or explore the world. If a vacation abroad was a part of your post-retirement plan, and you have saved for it in advance, then by all means go ahead.

But, if you suddenly decide to go on a world tour using your retirement savings, then you’re walking a slippery slope. So, you ought to be careful while spending once you retire. Try living as simply as possible and make sure you don’t eat into your retirement fund unnecessarily.

Additional Reading: What Are The Best Ways To Invest After Retirement?

  1. Not investing in a diverse portfolio: Retirement is the age when you stop working. But, it is not the age to stop investing. Mr. Kannan, a retiree, was a firm believer of the aforementioned philosophy. He was smart enough to understand that his retirement savings need to grow if he has tackle inflation in the coming years.

 So, he invested a large part of his savings in a lucrative bond with a decent interest rate. But, unfortunately for him, the bond was called by the issuer before its maturity and Mr. Kannan had to face losses. Something like this would never have happened if he had a diverse investment portfolio.

 Additional Reading: Rebalance Your Portfolio For Best Returns

Many retirees fail to create a diverse investment portfolio. The reason we are stressing on building a diverse portfolio is that it helps your money grow with minimum or negligible risk. It is advisable to create a mix of investments by putting money in laddered bonds, Mutual Funds, Fixed Deposits etc.

When you invest in three or four different avenues, you are not putting all your eggs in one basket. Even if you suffer loss from one of your investments, the interest earned from another investment will compensate for it and will help your money grow.

Additional Reading: Tips For Ideal Portfolio Diversification

  1. Investing too safely or too rashly: Staying in the comfort zone will not take you anywhere, but on the flip side, money is also too precious to be risked. These two different ideologies govern the lives of two retirees, Mr. Kumar and Mr. Prasad.

While Mr. Kumar is known for taking risks, Mr. Prasad is known for playing it safe. Kumar, being a risk taker, invested heavily in stocks and shares. But, when the stock market crashed, he lost most of his retirement savings.

Mr Prasad played it safe with his investments and put his money in a low-yield savings account. But, when inflation hit him, he didn’t have enough money to keep his head above water as his money didn’t grow.

Investing your retirement savings is a must as it makes your money grow to deal with the rising cost of living. But, investing too rashly, like putting all your money on a volatile stock or investing too conservatively like letting your money accumulate in a Savings Account, will not help your money grow.

As we mentioned above, having a diverse investment portfolio is the best thing a retiree can ask for since it not only helps you earn decent returns, but minimises exposure to risk.

Additional Reading: 5 Risks You Should Be Aware Of As An Investor

  1. Dragging debt to the grave: Debt is like a curse for retired souls. Sharma realised it the hard way. Instead of being happy about his retirement, he had worry lines all over his face as he made the mistake of carrying debt into retirement.

 He still has to repay a sizeable amount of his Home Loan, but with no income to make regular repayments, his debt will slowly start eating into his savings.

Clearing debt is one of THE most important prerequisites of retirement. Whether it’s Home Loan, Car Loan, Personal Loan or Credit Card debt, it is extremely dangerous and ill-advised to drag any kind of debt into retirement.

With no stable income, your savings will get exhausted in paying off EMIs and Credit Card bills. A surprisingly large percentage of sexagenarians (of age 60 or more) are burdened with debt.

This is considered to be one of the major reasons why 65 is considered to be the new retirement age. So if you are laden with debt, it is advisable to postpone your retirement until you have cleared it completely.

Additional Reading: Retirement Planning For Everyone 

  1. Lending money to children: When it comes to caring about their children, no one can beat Indian parents. Mrs. Shalini proved this when she gave away a sizeable chunk of her retirement savings to help her son out of a financial pickle.

She let go of her hard earned money so that her son and his family could lead a financially stress-free life. While this may sound endearing and her motherly care is understandable, what Mrs. Shalini did placed her in a financial pickle of her own.

As a parent, it is our duty to help our kids in their time of need. But, it is also a parent’s responsibility to teach children to stand on their feet and be independent. By giving away your retirement savings, you are making yourself dependant on your kids.

Additional Reading: How To Teach Healthy Financial Habits To Your Kids

While retirement should ideally be all about living a relaxed life away from work, financial management is something that needs to be prioritised during all phases of life. So, make sure you avoid falling foul of the above mentioned post-retirement financial mistakes.

Now, go ahead and explore your investment options.

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