Retirement is a goal we should all work towards at every stage of our financial journey, and the ultimate aim to keep in mind when making financial decisions.
Along the way, opportunities and pitfalls await us. They offer the potential to retire more comfortably or even earlier. If we choose poorly, retirement could be delayed, or we may struggle once our working lives are over.
Here are some common mistakes to avoid whenever possible.
1. Going Into Retirement With Existing Debt
It’s a big “no” as far as retirement planning is concerned. When you have no regular working income, paying off debt becomes more complicated. Ideally, all obligations, including your mortgage, should be clear when you finish your career.
Debt impacts spending, and nobody wants unnecessary commitments at later stages of their life.
2. Relying on Investment Income
You may have made wise investments during your work, but relying on them is unwise. Funds for retirement should come from various sources, including pension plans, savings, and, possibly, equity in your home should you decide to move and downsize.
Your investment portfolio can still suffer as you approach retirement, so be sure that your money doesn’t rely solely on this source.
3. Failing to Invest
Embracing the opportunity to invest is wise at any stage of life, including retirement. While retirees shouldn’t rely solely on their portfolio for financial stability, having a well-thought-out investment can help them be more comfortable in later life.
If you need investment planning, speak to an advisor who can offer professional help. They can tailor recommendations to suit individual needs and situations.
4. Taking Equity Release
When cash flow slows down, it can be tempting to raid the equity in your home. You’ve worked hard to pay off the mortgage and want to see if your property can ease you through retirement.
Some find equity release hard to resist, but there are severe implications regarding interest charges and potential revenue loss from a future sale. Equity release is like borrowing money from yourself, and it makes little sense in financial terms.
5. Planning to Work Beyond Retirement
It’s tempting to think that we’ll never retire when we’re young and ambitious. There will be a spark that wants to keep us mentally or physically active in the workplace. That’s why many use employment income as part of a retirement plan, but it’s a considerable risk.
Redundancy and poor health are two reasons why people may lose their jobs, and it’s increasingly hard to find employment as we age. This means that many who work beyond retirement age do so out of necessity rather than desire.
6. Underestimating Life Expectancy
If we knew the exact date we would die, retirement planning would be so much easier. It’s a grim summary, but one issue among many retirees is failing to take into account the potential for a long life.
On average, life expectancy figures show that anyone aged 55 will live to their mid-80s. Additionally, there is a 10% chance that you might continue into your 90s. When planning for retirement, it’s better to overestimate the years you have left.
7. Relying on Inheritance
That increase in life expectancy can also affect those in their 50s who are edging towards retirement. Our parents are living longer, and if we’ve factored potential inheritance sums into our plans, that longevity can delay our progress.
Not only is it unwise to include an inheritance windfall in our planning, but it’s sad to think that our parents have to die before we can move forward. While they’re still here, there’s no chance of retiring while their house and assets form part of our plans.
8. Not Factoring in Healthcare Costs
When you leave paid employment, any healthcare plan ceases. Your employer’s insurance policy will no longer cover the cost of prescription glasses, dental care, and general medication. Government provisions in the US will cover some, but not all, costs, and you’re on your own for most charges.
Many overlook this cost when planning for retirement, so avoid falling into the trap.
9. Not Making Adjustments for Cost of Living Rises
When planning future budget projections, many potential retirees work on current figures. Unfortunately, regular monthly payments such as insurance and utility bills are only likely to increase. Groceries and car fuel are also set to fluctuate.
It’s important to factor in higher costs. While making an educated guess at those likely rises is challenging, a percentage increase of around 5% each year will help accommodate rising charges moving forward.
10. Failing to Cater for Emergencies
We should have an emergency savings fund at each stage of our financial journey, and our retirement years are no exception. An unexpected repair can hit at any time, and it’s vital that you can cover it.
Unexpected vehicle trouble may arise, and issues with homes or living spaces can require significant amounts of money to repair. While compiling your monthly budget, have some excess in an emergency savings pot.
11. Falling Prey to Scams
It’s a sad fact that older adults are more at risk from scams. Many factors contribute to this, but the need to rely more on others is a significant issue. A lack of technological understanding is another concern, with older adults more likely to fall for classic smartphone and email scams.
A significant scam has the potential to reduce your retirement savings greatly, so it’s vital to educate yourself and guard against con artists.
12. Becoming the Bank of Mom and Dad
Unfortunately, our children can drain our finances in later life. When times are tough for them, they will naturally look to their parents, who are less likely to have a mortgage and no significant financial commitments.
They tend to forget that their parents have no regular income — or a fixed one — in retirement. Their requests for help tend to be big and often involve a house deposit. Turning them down is tough, but such requests can seriously negatively affect our retirement plans.
13. Neglecting Tax Implications
It’s essential to make tax work for you as you enter the retirement stage of your life. This subject is best tackled by a professional, so be sure to seek help and advice from a tax advisor.
The Registered Retirement Savings Plan is on your side and is a tax-friendly savings plan designed for retirement planning. A big mistake among many seniors is not using it to their advantage.
14. Divorce
While this isn’t a part of life anyone plans for, divorce can be the biggest threat to a comfortable retirement. Dividing assets between a couple is likely to hurt both sides of the table.
Unfortunately, preparing for and making provisions against losing those assets is difficult. Individuals must be aware of divorce’s negative implications in later life.
15. Set Realistic Goals
As they approach retirement, many workers speak about a desire to live in another part of the country. They may even want to live abroad. Others have grand plans to sail worldwide, but are these aims achievable?
It’s easy to fantasize about a dream retirement, but it can come at a prohibitive cost. This roundup contains many useful tips, but perhaps the most important is to be realistic about your targets.
