While retirement should be the best years of your life, many Australians make simple, avoidable mistakes with their finances that can leave them dependent on the age pension and without the funds to really enjoy life.
However, with some simple good advice at the start of retirement, these mistakes can usually be avoided, leaving retirees to focus on what is really important and that is, simply enjoying life.
1. Giving large sums of money to children
Many entering retirements makes the mistake of telling their children exactly how much they have saved and this, in turn, often prompts their children to work out just how much money mum and dad can do without. Unless you have millions set aside, giving money to your children is always a mistake as it creates an expectation that you will give even more money in the future. The simple answer is don’t.
2. Making emotional investment decisions
Many people reach retirement age and panic that they don’t have enough money. This then prompts them to make high-risk investments in the vague hope of catching up on lost time. Too often their dreams of big profits blind them to risks and many end up losing a chunk, if not all, of their money. All retirement savings are irreplaceable and should be invested with this in mind.
3. Ignoring your portfolio
At the other end of the spectrum are retirees who think they have so little saved for retirement that it doesn’t matter what they do with it, in terms of their investments, it won’t make any difference to their lives. This is almost as big a mistake as taking excessive risks. No matter how much money you have saved for retirement, you should be proactive in making sure these funds are safely invested and provided for you.
4. Miscalculating your retirement funds
Many misjudge either the total amount they have to retire on, and/or, the level of income it will generate. This is particularly the case when the decision is made to keep investment property in retirement. The high value can often give a false sense of financial security, while the actual income generated after all the costs are deducted, can be extremely low. Determine just how much money you have saved for retirement, conservatively judge how much income will be generated from those savings, and ensure you don’t spend more than your investments generate.
5. Changing asset allocations to conservative assets, such as cash
For many, retirement is the first time they have had to manage or decide how to invest a large amount of money. This can be unnerving at the best of times. Throw in a small market downturn and it is not unusual for people to panic and sell perfectly good investments. This is, of course, the worst option. By panicking and selling investments when the market has taken a step down, losses are locked in and any chance of recovering those funds as the market improves is lost.
6. Keeping up with the “Joneses”
Too often, we’re swept along by what others do. Focus on how you want to live. Think about what will make you happy in retirement and then invest your savings safely so you can focus on enjoying life. For most, the things that make them happiest are free. Time spent with grandchildren, walking barefoot on a beach, or spending time in the garden, all cost very little money and are a fabulous boost to the body, health and mind. If you have any doubts at all about how you should structure your finances, make the decision to get quality advice before you make any of these mistakes. It will be the best investment you make in retirement.
