5 common mistakes people make when planning for retirement
Knowing what mistakes to avoid when you’re planning for retirement can protect your hard-earned savings and ensure they last longer.
1. Taking advice from family and friends rather than a professional
There’s no doubt that people’s advice comes with the best of intentions—from where to go on holiday to which restaurants to try. But what works for them may not necessarily work for you too, especially when it comes to finances.
Seeking retirement advice from friends or family shouldn’t replace quality, objective, financial advice from an experienced and qualified adviser. You wouldn’t ask your dentist to fix your car would you?
2. Putting all your eggs in one basket
Just because you’re planning to retire soon, doesn’t mean you should suddenly put all of your eggs in one basket. Of course, it’s natural to opt for a more conservative investment approach by moving your money into defensive assets like bonds or cash. But, keeping your super diversified is a long-term investment strategy that helps to reduce risk without sacrificing returns. Another thing to think about is ensuring your savings last for as long as possible—going too conservative may mean your money runs out.
A famous investor, John Templeton once said, “the only investors who shouldn’t diversify are those who are right 100 percent of the time.” If that’s not you, diversify. And, if you catch yourself reacting to ups and downs in the market, go back to your strategy or check in with your adviser.
3. Lending or gifting money to your kids
For some, one of the toughest situations to resist is helping your kids out when they encounter money struggles. This is fairly common and can be fine if you have the money to spare.
However, if you’re already retired, giving away some of your financial assets may impact your own lifestyle in the long run. Before leaping in, it might be worth speaking to a qualified adviser.
4. Not saving early enough
Don’t defer saving for retirement until you’re almost retired—it can be a costly form of procrastination. In this case the early bird gets the worm—those who put away a little extra savings earlier tend to be in a position to afford a better lifestyle in retirement.
Those that never get around to it, or start saving more later on, either have to work longer or are reliant upon government assistance to fund their income, so big items like travelling overseas may not be in the budget. Take the time now to start putting away some extra cash for retirement (even if it’s a small amount).
5. Money isn't everything
A successful retirement isn’t just about building and managing your wealth. An important part in planning for retirement is determining what kind of lifestyle you realistically want to lead when you finish working. With many retirees spending decades in retirement, it’s helpful to decide what kind of lifestyle will lead to emotional fulfilment.
Financial planning for retirement is important, but it’s perhaps even more important to have a clear vision of how you’ll live your life in retirement because money isn’t everything.