Having worked as a financial planner for over 15 years, I’ve heard many misconceptions surrounding retirement planning.
Here are six of the biggest retirement myths that I hear.
I hope reading these provides food for thought and spurs you into action if you have neglected to think about securing your financial future.
1. I won’t live that long
The obvious response to this is no one knows. We’ve all heard the stories of the 20-a-day smoker still going strong in their 90s. While once scientists believed a life expectancy of birth at 90 was an impossibility, a 2017 study, by Imperial College London and the World Health Organisation predicted that a baby girl born in South Korea in 2030 will expect to live 90.8 years. A British born girl gets a fairly good innings too, at 85.3 years. Life expectancy is predicted to keep on rising around the globe which means that you could easily have two or more decades to go when you retire and you need to think about how you are going to fund the lifestyle you desire for all that time without a working income and taking inflation into account.
2. I’ll just keep on working
If you’re lucky enough to still feel like you’re invincible, enjoy, because the feeling won’t last forever! Right now you might be in peak health but by the time you enter your sixties it could be a whole different ball game. Yes, some of my clients are still happily working in their late sixties and even early seventies but more often people are ready to stop work or, worse, become too ill or frail to deal with the stresses of work, especially in this digital age, where there is less ‘down time’. It’s not an uncommon scenario for my clients in their late fifties to be out of work and unable to find suitable employment. This is something that is particularly prevalent in the hospitality and oil and gas industries. Limiting your retirement options to working longer can cause problems. In some countries, expatriates cannot get work permits over a certain age, for example 55 in Saudi Arabia, 58 in Indonesia and 60 in China. Plan ahead and give yourself choices instead.
3. Everyone needs a certain amount in the bank before retiring
I get asked all the time, ‘how much will I need a month in retirement?’ Sadly, there is no standard amount that we should all aim to save for retirement. If you like a simple life and will own your own home by the time you retire, your requirements will be very different from someone who wants to travel the world staying in five star hotels. Medical costs, home ownership, travel expectations and hobbies will all influence your target retirement income so it’s best to look at your own unique circumstances to determine the level of savings you might require. And that is best done with a professional who has a wealth of knowledge and experience and can flag up issues which may not have crossed your mind.
4. I need savings worth 70-80% of my pre-retirement expenses
If you Google, you will find all kinds of different formulas for calculating a definitive figure on retirement spending. But once again, lifestyle factors play a huge part. Generally expenses do tend to go down for retirees – they no longer have to pay commuting costs, lifestyle can be slower and taxes might go down. Then again, they may not! The situation will become clearer as your retirement approaches. This is another thing to discuss with your adviser.
5. If I max out my company pension I’ll be ok
You shouldn’t assume that your company pension will be enough to cover your retirement needs in their entirety. In addition, you may not have a choice as to when you can start to draw down on your company pension which could be problematic if you wish to retire early. It’s usually advisable to put additional savings aside to cover all eventualities.
6. Close to retirement I should invest conservatively
It is true that the closer you get to needing to use your retirement savings, the less risk you should be taking. However, it is important that your savings at least keep pace with inflation so transferring to the perceived safety of a bank deposit, for example, is a very bad idea, given current interest rates. It is possible to balance risk and return by investing wisely. Again, a good financial adviser should be able to recommend a wealth manager with a wide choice of investments to match all levels of risk which will give a better return than the bank.
The takeaway point from this blog post is that whatever your situation, and however old you are, it’s important not to stick your head in the sand about retirement. The earlier you start to prepare, the easier it will be and the more choices you will give yourself as you get older.
I’ve seen plenty of people who come to a brutal realisation in their forties and fifties that they are woefully underprepared and that can bring on a great deal of panic and anxiety. If that’s you, it’s not too late to put a retirement plan in place and if you’re not at that stage yet, you can save yourself a lot of stress by getting your financial planning in shape now.
If you’d like help with getting to grips with your retirement planning needs, I have a huge amount of experience of working with expats from all backgrounds and all income levels to get their finances in great shape. Do feel free to contact me for a discussion about your own circumstances. I’m reachable at firstname.lastname@example.org.
A leading provider of expat financial services and wealth management services across Asia.