We’re all living longer. Official US government statistics indicate that a girl born in 2020 will live to the ripe old age of 87 while a boy will reach 83.
That’s brilliant news….or is it?
Well, it is if your golden years are worry-free, but will they be? Will you have enough money to fund the comfortable retirement you deserve after a life of hard graft?
They say that money doesn’t make you happy, but it certainly contributes to a decent quality of life. Let’s face it, there’s little point in living into your eighties if you are scraping by and miserable.
That’s why building up a retirement pot which will enable you to retire and live out your days in comfort without having to face tough ‘eating or heating’ choices is really important.
If you are going to live for two, three, or even four, decades or more after you stop working, there are some fundamental mistakes that you need to avoid.
Not saving into a work pension plan
If your place of work offers a company pension plan, invest in it. Wherever in the world you are, there will be significant tax advantages to saving this way and, if you’re lucky, your employer will also be contributing. Never pass up this opportunity to boost your pension pot.
Started saving too late
Not saving early on in their careers is one of the biggest mistakes people make in their retirement planning. Never underestimate the power of time when it comes to building wealth. Compound interest is the magic ingredient which makes savings grow and the longer it has to work, the bigger the growth will be.
Taking a government pension plan too early
If your government pension is going to be your main source of income when you retire, you would be as well to delay taking benefits early. In any case, this decision is likely to be out of your hands with governments around the world raising the age at which state pensions are payable. If you live in the UK or Ireland, for example, and you are under the age of 40 you won’t be getting anything until you reach at least the age of 68 (and this could well rise).
Cashing out company pensions when changing jobs
It may be tempting to bank a lump sum from a pension when you move jobs, and many people do it, but resisting the temptation and keeping your savings invested – either where they are if you can, or rolling your nest egg into a new pension or tax-effective investments – will pay dividends later on. Staying invested is by far the smartest choice.
Playing it safe with investments
Many people believe that their money is best protected by keeping it in a savings account and that they are avoiding risk by keeping it there. But that is a fallacy. Their supposedly ‘safe’ bank deposits are at risk of erosion due to inflation. Investing in stocks carries risk too – anyone who tells you otherwise is lying – but the risk is manageable if you invest carefully and thoughtfully. Don’t play it too safe and miss out on the upside which the stock market can bring but do seek advice on how to invest wisely taking into account your tolerance to risk.
Prioritising your children’s education over your future financial security
Pension first, education second. If you can’t afford both, you should definitely prioritise your financial future over your child’s university fees. Your children will have other options open to them such as low or no-interest loans and other forms of financial aid and more time than you do to get their financial ducks in a row.
Relying on retirement calculators
The internet is awash with these and they can be a useful starting point to use when looking at your financial situation but they can never provide an accurate answer to the question of how much you need to save for your retirement. There are many different factors to take into account when planning for your post-work future and retirement calculators are a flawed approach to a complicated dilemma which doesn’t have a one-size-fits-all solution. If you are serious about your financial planning – and you should be – there is no substitute for the advice of a qualified financial consultant who can offer bespoke advice based on your personal circumstances.
Not considering what you will spend in retirement
Many people assume that retirement – when you no longer need money for work travel, clothes, meals on the hoof and so on – will be less expensive than it is. If your expenses are higher than expected when you retire, you could be in for a nasty shock and may even be forced into a situation where you need to go back to work. And no-one wants that.
Well before you retire have a good hard look at your anticipated outgoings – in particular the fixed monthly costs such as rent/mortgage, utility bills, insurance, food and travel costs – and work out the minimum amount you’ll need to cover them. Then you can compare this with your expected income from your various sources, including state pensions and personal investments. If you have done your planning well, income will exceed expenditure. If that’s not the case, you have a problem and will either have to work out a way to up your income, work longer or reduce your costs.
Blowing a windfall
If you are lucky enough to be left money or property, if you sell a business for a tidy profit or if you are on the receiving end of a significant insurance settlement think hard about what you do with your windfall.
Remember, you can only spend the money once. If it is frittered away on fancy holidays, luxury cars or living like a rock star it won’t be there for your latter years. By all means treat yourself but it’s all about balance. A financial bonus of this nature can significantly bump up your retirement pot and give you enviable choices once you retire.
Taking your eye of the ball
Retirement planning is not a one-off job which can be completed and ticked off your to do list. It requires regular attention and fine tuning as your situation changes and new challenges arrive. Our advisers always recommend at least an annual review to ensure clients are on track with their goals. Any major life changes, including a new job, births, marriages and deaths, may require a readjustment. This is another compelling reason to work with a financial professional who will do the number crunching and calculations with you.
As you’ll have gathered, there are a lot of potential financial planning pitfalls which can negatively affect your retirement however, flipping that on its head, think about all the positive steps that you CAN take to ensure that your golden years really are golden.
If you’d like help with putting in place a plan to secure your financial future while you’re working and beyond, why not get in touch for a free initial consultation with me at Jregan@infinitysolutions.com ?
Senior Financial Consultant
When I provide a financial consultation, my approach is to treat my client like a business entity I am in collaboration with to achieve their goals and objectives. Through a combined client/consultant effort I seek to improve their strategies, stressing that actions without positive results are costly and a setback to their financial futures. My priority is always a successful end result.