- Date : 19/03/2020
- Read: 4 mins
Let's take a look at the things that a 50-year-old shouldn’t do in order to safeguard their financial future.
By the time the 50s hit, most of us will find retirement staring us in the face. This is our last decade of active work life and it will be all about protecting the fruits of the savings and investments we built up over the years. Of course, we can add to our savings, but this is a time when unavoidable expenses start to surface more frequently – be it medical bills or kids’ educational expenses.
That aside, there are several money mistakes that people can commit in their 50s. Let’s see what the common ones are:
1. Spending retirement funds too early
No one should touch their retirement fund before they actually retire. But on certain occasions, people tend to underestimate the importance of having such a fund and spend it thinking they can replenish it later. But the question of spending your retirement fund on regular expenses should never arise. Even in case of an emergency, you should ideally have a separate emergency fund so you don’t need to dip into your retirement fund to bail you out.
2. Footing kids’ (or grand-kids’) expenses
The 50s are a time when you may face obligations related to your children or even grandchildren. In case your offspring are still minors, you will have to meet their educational expenses. You may also have to help kick-start their career, such as by contributing to their business’s initial capital. In the case of grandchildren, as a new grandparent, you will naturally be keen to pamper them, sometimes even at the expense of your retirement plans. So, while you can be generous, also be prudent.
3. Thinking it’s too late to start now
Not everyone manages to start saving early. You may have settled down late in life or travelled the world too often to save much. But that doesn’t mean you can’t start saving now. You can still manage to save well during your 50s and end up with a handsome retirement corpus. A common mistake that people of any age commit is to think it’s too late to start saving – or start anything for that matter. Don’t assume that just because you turned 50 you cannot start doing what you always wanted... whether it’s learning French, hitting the gym, or start saving money.
4. Miscalculating the caution to be exercised
Many people switch their investment strategy after retirement. They close or substantially reduce risky investments or switch to conservative options like fixed deposits and government saving schemes. With an expected reduction in the flow of income, it’s natural for them to avoid taking risks with their investments. By not lowering the risks in investments, a 50-year-old can end up jeopardising his/her financial future.
Capital protection should be the primary aim after you turn 50, but at the same time, it is not wise to lose out on the market growth and yield altogether. Therefore a combination of safe investments and, say, market-linked mutual funds or blue-chip stocks will make sure that you protect your investments and also stay in tune with the market productivity.
5. Miscalculating post-retirement needs
You can always refer to TomorrowMakers' Retirement Planning Calculator to find out how much money you would need to lead a comfortable life after retirement. Back in the day, this calculation was done based on assumptions. However, it would be a mistake to do so in present times. You should use all available resources to arrive at the ideal retirement corpus amount so that you don’t fall short later.
Related: 7 Pillars of financial planning
6. Relying on employment benefits
Employment benefits can have several components – leave encashment on retirement calculations, provident fund, gratuity etc. However, over-dependence on this is not recommended as you may not have complete clarity on the amount receivable. For example, leave encashment calculation at the time of retirement is an unclear area for most of us. Therefore, it is best to treat employment benefits as a welcome addition to the retirement corpus that you are working towards.
As we grow old, our expenses tend to increase, and so do the risks. A classic example is medical expenses, which tend to increase with age, while health insurance cover wanes and becomes more expensive. Therefore, with passing age, it is important to be extra-cautious about the savings we have and keep a close watch on our day-to-day expenses. Have a look at why ignoring to plan for retirement can be financially damaging to gain a better understanding of why these 6 mistakes should be avoided.