“I’m 57 years old and wanting to know some of the more common mistakes people make when planning for retirement and how to best avoid them."
-Question from Belinda in Fremantle, WA
Top answer provided by:
Jason Mcfadden
Retirement planning is a critical phase of life, whether you're preparing for a full retirement or considering a reduction in your working hours. Unfortunately, many individuals make common mistakes during this pivotal time that can jeopardize the security and enjoyment of their retirement. My five top common mistakes when planning for retirement are as follows;
1. Neglecting Superannuation Maximization
One of the most significant mistakes people make when planning for retirement is not maximising their superannuation funds. Consider ways to boost your super. One way is to implement salary sacrificing, which involves making pre-tax contributions to your superannuation. This strategy allows you to contribute more money, but be aware of the relevant contribution caps and thresholds. Additionally, take advantage of Government super measures, such as the spouse superannuation rebate and Government Co-Contribution. Another crucial aspect is reviewing your insurance coverage regularly to ensure it aligns with your changing circumstances, such as decreasing debts and an empty nest. Failing to do so can result in excessive premiums or inappropriate coverage.
2. Inadequate Long-Term Investment Planning
Underestimating your life expectancy is a common blunder. With an average retirement age of 65, men can expect to spend approximately 19 years in retirement, and women, 22 years. It's vital to strike the right balance between risk and asset allocation, tailored to your risk tolerance.
The biggest mistake we see are when individuals take on too much risk and or become over-exposed to a particular asset class or sector. Whether it be too much funds in cash and funds not keeping pace with inflation, too much in shares and selling during a market fall, or an over-exposure to property funds. The key is a mix right and in line with your risk tolerance.
3. Failing to Develop a Personal Strategic Plan
While businesses have strategic plans, most individuals overlook creating their own personal strategic plan. This plan sets out your retirement goals, which may include accumulating enough funds to work part-time by a certain date. Start early to think about what retirement means to you, how it looks, your income sources, and explore Centrelink eligibility. A well-structured personal plan can guide your financial decisions.
4. Ignoring Living Expenses and Retirement Lifestyle
Understanding your living expenses and desired retirement lifestyle is crucial. Questions like "Will I have enough to live comfortably?" and "How much money will I need?" revolve around comprehending your income requirements. Failing to track your expenses could lead to uncertainty and financial instability in retirement. By keeping a close eye on your spending, you can ensure a comfortable and enjoyable retirement without running out of funds.
5. Neglecting Financial Advisor Guidance
Seeking advice from a licensed and registered Financial Planner is a vital step. Research indicates that individuals who maintain an ongoing relationship with a Financial Planner tend to have a higher level of financial well-being. According to Vanguard, having an adviser can potentially add about 3% in net returns for clients, achieved by assisting with asset allocation, portfolio rebalancing, and providing behavioural coaching to prevent impulsive reactions to market fluctuations. Beyond the financial benefits, an adviser can offer peace of mind and support throughout your retirement journey. While you may not require continuous advice, leveraging the expertise of a retirement planning specialist can be an investment that pays dividends.
In conclusion, effective retirement planning involves careful consideration of your superannuation, long-term investments, personal goals, living expenses, and professional guidance. By avoiding these common mistakes and adopting a strategic approach to retirement, you can work towards a secure and fulfilling post-career life.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.
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