08 May 2020
We all need to be realistic about our retirement planning. Sticking our head in the sand and hoping it will all be ok is the first major retirement planning mistake. We need to think and plan ahead throughout our working careers.
We don’t deliberately try to sabotage our retirement planning, but often we make these decisions without thinking about the consequences.
• Leaving your job – Most employees change jobs about 12 times during their working lives. Often there are employer contributions such as pension contributions or profit-sharing. These could only be available to you after a certain length of employment with the company e.g. 5 years. You could be near the vesting period when you decide to leave the company and forfeit these benefits.
Always check what your vesting situation is before you decide to leave a company. You could be throwing away a large pension boost.
• Not saving now – Compound interest loves time. The longer you save the more compound interest you earn. Starting to contribute towards a retirement plan early, no matter how small, allows compound interest to work its magic on your nest egg. Rather cut back on some expenses and start contributing now.
• Not having a plan – It is vital to make use of a financial adviser to help you plan your retirement. You need to plan for how long you will potentially live, what lifestyle you want to lead when you retire, at what age you want to retire and where you will live when you retire. If you don’t know this then how do you know how much you will need?
• Investing unwisely – Do not invest on impulse or emotion or the latest trends. Ensure your portfolio is globally diversified across asset classes. Long term investing is slow and steady. If you are prone to take part in all the new risky investment options, then chat to your adviser about including a small percentage of your portfolio into new investments or dabble a small portion in the stock market independently from your retirement portfolio.
• Not rebalancing your portfolio – Your adviser should be rebalancing your portfolio on a regular basis as market conditions change, especially in the last few years before retirement. Your risk profile should be moving from adventurous to more conservative to protect your wealth.
• Not maximising your pension plan – If your company matches pension contributions, then try to contribute the maximum you can. These employer contributions could potentially give your retirement savings a big boost. If there are no employer contributions, then you would have to contribute more towards retirement.
• Poor Tax planning – Ensure that you meet with a local tax consultant or an international tax consultant if you are working abroad, to help structure your retirement portfolio in such a way as to mitigate tax on your retirement assets before and after retirement.
• Cashing Out savings – Try not to cash out your retirement savings before you need them. The drop in your retirement fund total, might not be enough to sustain you throughout retirement. Check the pros and cons of doing this as well as tax implications with your financial adviser. Each person’s case is unique, so your adviser is your best guide here.
• Driving up debt – Going into debt before you retire could have dire consequences for your retirement savings. Try to have a cushion fund for any unforeseen expenses. Using retirement contributions to pay off debt no matter how necessary it seems, will impact your retirement negatively.
• Early Social security – Try not to claim social security or draw down a pension early. Your payments will be much less. Waiting even a year or two after the mandatory retirement age could maximise your social security payments or substantially increase your pension value. The only time early retirement could make sense is if you were in poor health or if spousal benefits depended on your retirement commencement.
• No health costs plan – Medical costs increase with age, and healthcare isn’t always covered in full. You might need to take out private healthcare or be prepared to pay for the medical costs yourself. Set up a savings fund for this and try to maintain a healthy lifestyle to reduce healthcare costs. (Jim Probasco – Investopedia)
It is quite possible that many of us have already made some of these mistakes. If you think your retirement plans are not on track, then try making some changes now while you are still working and contributing.
Chat to your deVere Acuma Adviser to help you come up with a strategy to get your retirement planning back on track. [email protected]
Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere Acuma adviser for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.