In an ideal world, we would start contributing to our retirement savings accounts the moment we receive our first payslip from our first job. In this time of fiscal uncertainty, there are many financial decisions that can make or break you during your formative years.
Below are some of the key pitfalls to avoid in retirement.
Assuming You Will Retire at a Specific Age There are many factors that can influence the age at which you retire, some of which are not in your control. An unfortunate layoff, forced early retirement or unseen health issues can cause you to retire earlier than expected. If you are counting on the last few years of savings to set everything in order, you may find yourself with a lack of income in a tough job market. This is why it is absolutely imperative that you begin your retirement planning as soon as you can. On the other hand, just because you reach 62 or 65 doesn't mean that you should automatically retire. Take the time to do a cash flow analysis and speak with a financial planner to determine when you can comfortably retire.
Not Updating Your Retirement Plan Reaching retirement doesn't mean that it is time to abandon risk. Many retirees make the mistake of dumping higher risk equities from their portfolio in favour of low-risk bonds. The problem is that bonds don't provide the long-term potential required to sustain a retirement income for twenty-plus years. Understanding investment risk is critical.
We offer all our clients a free online risk profile analysis, just ask for yours.
Failing to Diversify Your Risk Many people who believe their personal savings and state benefits will be enough to take care of their retirement. The addition of a private pension can give you a nice boost, but there is more you can do with your income. To protect yourself against the market, while providing the potential for strong returns, spread your investments across a range of risks. This is where a professional adviser can help structure your asset allocation to create a suitable portfolio.
Retiring With Too Much Debt You should make paying off high-interest credit cards a top priority when approaching retirement. It may not be possible to begin retirement entirely debt-free, but the interest payments on high-interest accounts will eat away at your savings. If you are in good health and can afford to work for a few more years, delaying your retirement may give you the breathing room to eliminate this debt. No one wants to spend his or her retirement paying off pre-retirement expenses.
Refusing to Downsize Lifestyle Depending on the level of savings, retirees should expect to reduce their living income by 25% or more. Many people are tempted to immediately go on a vacation or make a big purchase, but these decisions can have a lasting effect on future savings. The two major areas that a retiree can address are his or her home and vehicles.
Moving to a smaller home or to a less expensive region can take a large chunk out of your expenses. Reducing the number of cars to a single vehicle or acquiring a more fuel-efficient vehicle will also free up more income. This is the trade-off you make for the free time that retirement allows.
If you would like to find out more please about our tax and financial planning services please contact edward.grant@in2matrix.com for more information.
The information is intended to provide information only and reflects our understanding of legislation at the time of writing. Before making any decision, we suggest you take professional financial advice.
The value of investments can fall as well as rise and any income from them is not guaranteed. You should be prepared to lose your investment. Past performance is not a guide to future performance.
