After over 200 conversations with over 55’s in 2023 I’ve collated the biggest retirement mistakes we see people making as they approach one of the most exciting periods in their life.
In this post, we highlight the top 7 mistakes we’ve seen from 200 conversations in 2023.
Retirement is a major transition, a major life event which needs to be treated with care and careful planning. Yet many are sailing blind towards what’s probably the most important part of their life.
And it’s not their fault. Life is busy and provides many distractions on a daily basis. For many, retirement planning gets kicked down the road for another day. Until one day they are forced to face the music.
It’s common for it to be kicked down the road, year after year, until one day you wake up and go “oh f%$@”, I need to do something about this. Forcing you into panic mode…
It’s one of life’s most significant events, one that brings a vast array of opportunities and challenges. Yet many ignore the time and preparation required to plan for a comfortable retirement.
#1 No framework to think through important retirement decisions
Walt Disney once said, “when your values are clear, your decisions are easy”.
This is so true when it comes to retirement planning…
Most lack a framework to help them plan a retirement packed full of experiences and memories.
To experience the best possible retirement you can, you need a framework to methodically think through and plan your retirement. It’s critical if not mandatory. So you can enter retirement confidently without fear of running out of money. Without fear of missing out on experiences and getting to the end feeling regret that you should have done more if you had planned better.
Most start with the money questions, trying to answer one binary question: will I have enough or will I be okay in retirement?
While crucial questions, is it enough to ensure you can live your best life in retirement.
Retirement planning is a minefield, and retirement in itself brings with it challenges and unforeseen events which are hard to plan for.
After all you could be planning a 30 year retirement or 10,950 days…potentially as long as your working life.
With over 200 discussions this year alone, it’s evident people are struggling to plan for their retirement years. It’s frustrating, difficult and nerve racking at the very least. After all it’s the rest of your life you are planning and you only get one shot to get it right.
While many will speak with family and friends, spend countless hours reading articles on the internet they still struggle to figure it out. Or at least answer the basic questions.
There’s one main reason for this, no framework to think through probably one the most important transitions you’ll go through.
With over 20 years walking alongside pre-retirees and retirees you could say we know a thing or two about retirement. In fact, it’s the only thing we do. We live and breathe retirement planning.
Over that time we’ve developed a framework for thinking and planning out your next 20-30 years. It all starts with your best life…what do you value in life and what does your ideal retirement look like? In other words what are you going to do to fill potentially 10,950 days post work?
Want to know a little more, check out our recent video by clicking here…
#2 Short term thinking harming long term opportunities
Many get caught up in the now, kind of frozen with current market events, inflation, market movements, investment performance and legislative changes.
Spending pointless hours pondering what the economy might be doing this time next or where the share market might be.
Morgan Housel in his recent book, “Sames as Ever” talks about future events being unpredictable. Stating that forecasting is hard.
He goes on to say we should be asking different questions:
For instance, What will be the same 10 years from now? Or What will be the same one hundred years from now?
In his book he shares the below story:
“This guy-we’ll call him Jim (not his real name)- was driving around Omaha, Nebraska, with Warren Buffett in late 2009. The global economy was crippled at this point, and Omaha was no exception. Stores were closed, businesses boarded up.
Jim said to Warren, It’s so bad right now. How does the economy ever bounce back from this?”
Warren said, “Jim, do you know what the best selling candy bar was in 1962?”
“No,” Jim said.
“Snickers,” said Warren. “And do you know what the best selling candy bar is today?”
“No,” said Jim.
“Snickers,” Warren said.”
Morgan goes on to point out that some things never change in a changing world.
People are scared to make decisions or to make changes, largely due to the financial media’s constant focus on what’s going wrong right now. Without any thought about what doesn’t change.
Perhaps this is an insight into why most are terrible at planning their own retirement. Constantly waiting for the right time, and to be quite frank, a time that will never come. There’s no perfect time except for today or yesterday.
Successful retirement planning is all about understanding your end goal, what it is you want in retirement. Implementing a well thought out plan and iterating year after year as events and your life unfolds.
While the future is uncertain and hard, if not impossible to predict. Don’t let that get in the way of planning potentially the best years of your life.
While hard, you need to jump in and make a start. Your future self will be thanking you that you did it sooner rather than later.
Take John and Jane for instance. Convinced by their friends to make changes to their super and reduce the level of risk in the depths of Covid-19.
They were caught up in the short term, what was going on in the now without their eye on the longer term goal. The change ultimately cost them a cool $200k. That’s less experiences in retirement and perhaps will mean they will need to work longer than they anticipated.
If they had a plan they were working towards, they would have been able to review their plans and if nothing had changed, continue on their merry way. Rather than make a common retirement planning mistake.
#3 Confused about the Retirement System
The retirement system is complex to navigate, there’s no doubt about it. Moreso if you’re not exposed to it day in and day out.
Navigating the retirement landscape is like finding your way through a vast maze filled with twists, turns, hidden passages and dead ends.
Imagine it as a complex labyrinth with numerous doors and corridors. Each door represents a different aspect of retirement, from super, contributions, taxes, centrelink, income, investment, health, longevity and sequencing risk to name a few.
Without a guide, it’s easy to get lost and frustrated in this intricate puzzle. Just like you wouldn’t enter a maze without a map, planning your retirement without a clear understanding of the system and landscape can lead to confusion and financial setbacks.
And then you’ve got news channels blasting you with information 24hrs a day, 7 days per week.
In the current retirement landscape with contribution limits and rules, you need to plan years ahead if you are going to achieve a good outcome or improve your finances.
Lack of planning can leave you worse off financially if you don’t know how to navigate the retirement system with ease.
What most lack, is the final picture, what you want your retirement to be and how to make your retirement the best years of your life. Only then can you start to put your retirement puzzle together piece by piece in the right order and in the right place.
#4 Not seeking advice soon enough
Many have this notion that financial advice is expensive…
But what’s the cost of making a financial mistake or simply not taking action?
Cindy, who we spoke to recently, had largely gone it alone. Like most people, retirement had crept up on them and up until now had put planning off.
Now in their early 60’s, realised that retirement was only a few years away and to date had done no planning around it.
As we spoke, it was clear they were missing out on many financial benefits the superannuation system offers.
It was apparent they were missing out on 000’s of dollars of benefits if actioned years ago. Financial gains that would have put them in a far better financial position than where they were today.
This is more widespread than you would think. It’s one of the BIG Retirement Blind Spots.
While making a start is better than nothing, it’s better to start earlier than later if you want to maximise your financial position prior to retiring.
One of the big mistakes we see people make is waiting too long. In fact, in over two decades of doing this, there’s one phrase that I’ve never heard from any client EVER:”I really wish I would have waited a little longer to do this”.
And if you think there’s a perfect time, sorry to be the bearer of bad news, there’s never a perfect time.
#5 Retirement requires a shift in mindset
In your working years the goal is to save and accumulate as much as you possibly can. You’re encouraged to take risks to build your retirement honey pot as big as you possibly can.
It’s ingrained in your DNA to save and invest. After all that’s what’s splashed all over the media channels, day in day out.
However, as you approach retirement, you now need to adjust your thinking. You’ve now got to do a 360 and instead of saving and accumulation, transition to a spending mindset.
It’s not easy to simply flick a switch and change tack…
One client we helped recently, Joe and Cindy, up until meeting us had largely gone it alone. They had amassed a reasonable amount of wealth. They were not going to run out of money.
However, there was one glaring problem with their current financial structure, they were aggressively invested. Sure they had generated high returns, but now they did not have their income to rely on.
If the last 20 years have shown us anything, the future is unpredictable and there’s likely to be a major event that will rock share markets every 10 years. They were at risk of seeing their wealth half if a major market event occurred.
There was one comment from Joe that highlighted the importance of de-risking their portfolio.
I asked them what would happen if their portfolio halved in size from a major market event.
Joe’s response, “I’d slow down on my spending”.
It was apparent we needed to design a portfolio that no matter what was happening in investment markets or the world, they still had the confidence to spend and live their life.
But here’s the thing, they didn’t need to take this amount of risk to achieve their retirement goals.
So, we helped them design a portfolio tailored to their specific retirement goals, building in safety margins. While simplifying their investment structure which was more complicated than it needed to be.
The end result, a lower risk portfolio designed with preservation in mind and just enough risk to ensure they would never run out of money. Nor would they need to skimp on their experiences. In fact we were encouraging them to think bigger…
It’s a common mistake many make as they approach retirement, thinking what got them to retirement will get them through retirement. A mindset shift is required from accumulation to decumulation. It’s a different approach…
#6 Not proactively building in Margins of Safety
For many, they think they can continue the same way they did when they were working and it will all work out.
What most don’t understand is that there are many risks soon to be retirees face as they approach and enter their retirement years.
You’ve got inflation, market, sequencing and investment risks are just the tip of the iceberg.
A common mistake we see is people ignoring sequencing and investment risk. Thinking about the strategy that got them to their retirement will see them through.
Assessing the viability of many retirement plans, we find most do not need to expose themselves to the investment risks they have been accustomed to in their working years.
To be honest many are blind to the risks they are currently taking and the impact that will have on their retirement if they continue in the same manner.
Subsequently, they do not layer their investments within their super to give them enough wriggle room when markets fall. Potentially eating through their capital at a much faster rate as they sell down growth investments at depressed prices. A course of action many will not be able to recover from.
For instance, we advocate a bucket approach to investing for retirement. Where you break out your investments into their separate components.
Holding enough in defensive investments to cover income payments and capital expenses in the foreseeable future. Allowing clients to ride through the ups and downs of investment markets while maintaining the confidence to spend.
It’s not your fault, it’s just that the financial system is set up for accumulation and is lagging when it comes to retirement planning. The government has realised this and now taking action to improve the retirement outcomes of future retirees.
#7 Thinking once you have a plan, that’s it…
So, you’ve got your retirement plan, now that’s it, no need to do anything further…
No, no, no, it’s only the beginning.
A retirement plan is not a one time event. It’s not set and forget.
If anything’s evident from over 20 years of advising over 55’s into and through retirement. It’s that life has many twists and turns and most you don’t see coming.
No one knows what the future holds, it’s uncertain which means it’s important to regularly review your retirement on a regular basis. It’s a lifelong journey of iteration after iteration.
I only have to look to the last forward planning meetings I had with clients. One couple had planned yearly trips to the UK to visit their son. Unfortunately, his relationship broke down and is now back in Australia living at home. They are now rethinking their travel plans.
Another recently retired couple, asked to accompany their grandson to Sri Lanka for a cricket tournament as the parents couldn’t go. An unbudgeted expense…
Now, they are covering the travel costs for their grandson and themselves.
While many think of retirement planning as an event, it’s a process you need to rinse and repeat all the way through your retirement years.
To be honest, I can’t recall a plan that’s gone 100% to plan. There’s always something, whether that’s a change of plans, health issue, market shock, economic factors, legislative change, curveball, retiring earlier or later. Your retirement plan needs to be regularly reviewed and will require course corrections along the journey.
Think of it like a pilot setting off for a destination, it’s well known that flight plans rarely go according to plan. Pilot’s know they’ll need to make course corrections along the journey, it’s a matter of when and what type of course correction it’ll be.
Our role is a guide in client’s live’s helping them navigate one of life’s most important transitions and quite possibly one of the most exciting times in their lives. When they have the freedom to unleash and experience everything they couldn’t while their time was dictated by work.
Are you on track to be Retirement Ready?
If you’re sitting there wondering whether your retirements are realistic, how do you optimise your plan and whether you’ll be okay in retirement.
It’s time to book your Retirement Clarity Call by clicking here. We’ll have a chat about where you are, your current challenges and pinpoint where your retirement plan needs work. We’ll also provide a framework to help you gain complete clarity about your retirement options.
The earlier you take action, the better prepared you’ll be. Who knows, maybe you can start your retirement adventure earlier than you thought.
Here’s the thing, retirement for you could potentially last 30 years or 10,950 days. It could be as long as your working life. The fact of the matter is your health is going to be at its best for the first 10-15 years of retirement. This is where you need to maximise your experiences while you are fit and able to undertake them.
It’s going to cost money…you need to be well prepared…
Successful retirees spend the time to map it out and arrange their finances accordingly so they can reap the benefits of a well prepared plan.
Book your Retirement Clarity Call by clicking here to start 2024 off with a clear plan for achieving the best retirement you possibly can.
Glenn Doherty – CFP – Financial Planner | Retirement Planning Made Simple for aspiring grey nomads and avid travellers within 7 years of retirement