By Liz Maroney, Westlawn Wealth Adviser
12 February 2016
We all dream of living an idyllic lifestyle in retirement. For each of us, that will mean something different. But while lifestyle aspirations will differ, one common issue facing all of us is: Will I have enough money to fund my retirement?
The answer to that question will depend on the actions and decisions you take both prior to, and during, your retirement. So, to help you get it right, here are 7 common retirement mistakes and how to avoid them.
Mistake No 1: Underestimating years in retirement
You can’t successfully plan for retirement without knowing how long you need to plan for.
If you retire at age 65, you can expect to spend on average 19 years in retirement if you’re a man, and 22 years if you’re a woman. Of course, you may live even longer than the average.
According to a recent article by MLC, How long will you live? if you are aged 65 today, there’s almost a 75% chance you’ll reach age 84, a 50% chance of reaching age 87, and even a 5% chance of reaching 100.
During your retirement years, you may need to spend more on healthcare than originally anticipated, especially as you age. Similarly, government income support rules may change over time, which could leave you with less income than expected.
If you underestimate the years you’ll spend in retirement, it may be necessary to drastically restrict your lifestyle as you age and your retirement savings dwindle.
To calculate much you may need in retirement, try the MLC Superannuation calculator.
Mistake No 2: Not having a budget
Budgeting is an effective tool for keeping your finances in check. A budget shows you where you’re spending money, where you could cut back and where you can save. While cutting back on spending can be difficult, no matter how much you earn, budgeting is all about taking control of your money and managing cash flow.
Here’s a helpful tip. Learn to live within a fixed income budget while you’re still working. Consider cutting back on spending, and cutting up those credit cards altogether. Try living on 60% of your current income to determine what changes you’ll need to make to your spending habits in retirement.
Mistake No 3: Missing out on Centrelink benefits
You may have been ineligible at some stage, but that shouldn’t stop you from reapplying for Centrelink benefits, even if your circumstances haven’t changed. Unfortunately, many retirees make the mistake of not doing so.
With indexation of asset and income thresholds and changes to deeming rates and Commonwealth Seniors Health Card thresholds, you may become eligible for some form of Centrelink concession or payment at some point.
Be sure to check your eligibility for Centrelink benefits at least annually.
Mistake No 4: Not diversifying your investment portfolio
“Don’t put all your eggs in one basket.” Sage words of advice most of us have heard many times. It applies to many aspects of our lives … including investing.
Holding just a small number of investments exposes you to greater investment risk, especially during times of increased market volatility. Spreading your investments across asset classes such as cash, fixed interest, shares and property will generally produce more consistent investment returns over the longer term.
You should also diversify your investments in relation to timeframes for maturity. Setting short- and long-term goals helps ensure you have enough money throughout retirement.
This is often referred to as your investment horizon, which you can read about here.
Mistake No 5: Panicking at the first sign of volatility
Successful investing is not always smooth sailing. That’s why it’s so important to diversify your investments. When market volatility does strike, remember not to panic and stick with your investment strategy. If a quality investment falls in value, that’s usually the worst time to sell. Selling will only realise your losses. But if you hold on, and perhaps even buy more when the market is down, you’ll be better off when markets recover.
Mistake No 6: Not researching investments or understanding risks
Before investing in any asset, you should understand the potential benefits and risks of the investment to ensure it suits your investment needs and objectives.
It’s important to understand your risk profile. That’s the level of investment risk you feel comfortable with taking into account:
- Your time frame for investing
- Expected level of return
- Market knowledge, and
- Purpose for investing.
As the tech bubble inflated during the late 1990s, it was common for inexperienced investors to take share market advice from family, friends, colleagues and other self-proclaimed “experts”.
Unfortunately, many acted on this advice without doing their own research. And many lost money when the tech bubble burst in 2000. Always research any investment first and find out who is behind it. Stepping back and doing research also gives you time to properly evaluate whether the investment is right for your investment strategy.
Remember, if the return on an investment looks too good to be true, it is likely to be high risk.
Mistake No 7: Failing to plan for your financial future
“Fail to plan, plan to fail” is an oft-quoted adage when it comes to investing for retirement.
Developing a sound financial plan is vital as it sets out your retirement goals and how to achieve those goals. Your plan should contain investment advice and information about the level of risk attached to each investment in your diversified portfolio. A sound financial plan will also address issues such as insurance, your taxation position, cash flow and estate planning.
A simple strategy you could start now to save more for retirement is topping up your super through ‘salary sacrificing’. This is where you rearrange your pay so that your employer pays a proportion of your salary (in pre-tax dollars) into your super fund.
For advice on planning your retirement, please contact me:
- Call 02 6642 0433.
- Email email@example.com
Copyright © 2016
 Source: Australian Life Tables, 2010-2012.
 Based on data from the Australian Bureau of Statistics, Life Tables, States, Territories and Australia, Nov 2014. Australian Institute of Health and Welfare, Australia’s health 2014, May 2014.
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The advice on this site may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial, tax and/or legal advice prior to acting on this information.
Past performance is not a reliable guide to future returns.
The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.
Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
Liz Maroney and Westlawn Wealth Management Pty Ltd ABN 32 124 861 409, Authorised Representatives of GWM Adviser Services Limited ABN 96 002 071 749, Australian Financial Services Licensee, 105 -153 Miller Street North Sydney NSW 2060.