Retirement blunders you need to avoid if you want to retire comfortably

Remember when you were young and made a mistake, did something you shouldn’t have? You were probably given a talking too from your parents. Told to learn from your mistakes.

It’s one way we learn and not necessarily a bad thing.

While at the time, you may regret the mistake, with the passing of time you look back on what you learnt. More often than not, you don’t make the same mistake again.

When it comes to preparing for retirement, you can’t afford to make mistakes. Any financial mistakes at this crucial stage of life, may impact your retirement lifestyle for decades to come.

It’s a period in life, where it’s valuable to learn from the mistakes that have been made by those which have gone before you.

But here’s the thing, many don’t talk about their mistakes at this critical phase in life. Due largely to embarrassment and not wanting to admit they got it wrong.

There’s not been one person we have sat in front of at this important stage of life that did not have blind spots or gaps they were fully aware of. Whether they had a lot of money or not much, all had blind spots and gaps they were ill prepared for.

Had these blunders not been identified and mitigated, their retirement would have been so much different. Yes, in some cases left unchecked they would have led to a less than desired retirement lifestyle.

Retirement Danger Period

Did you realise there’s a retirement danger period? This is the time between pre-retirement and post retirement.

Left unaddressed, exposes you to significant risk. While you may not see it at the time, it festers under the surface and appears when you least expect it.

It’s the five years prior to retirement and five years post retirement. It’s not known to many…

But what does it mean?

To be blunt, any bad decision made in this period is extremely hard to come back from. It can mean the difference between a comfortable and happy retirement and living with regret.

Not understanding the basics

As we talk to people approaching retirement daily, many simply don’t understand the basics of planning for one’s retirement.

For many, they drift into retirement without understanding how one plans for this important transition.

Whether you plan to be self-funded or partly funded for retirement, you simply need to know your numbers as the first step.

You need to know how much money you will need to sustain a comfortable lifestyle for the rest of your life. For some that will be a lot and for others not so much. Everyone’s retirement journey is unique.

Sure, there are published retirement standards to guide you. However, I’ve never seen anyone fit the bill precisely. Your retirement is not average, so why use averages.

There are many outputs and inputs which need to be considered. Of which any can affect your final numbers significantly.

Understanding your number is the first step in guiding your financial decisions. Once you understand your numbers, every financial decision will be far easier.

Lack of being preparedness

Think of your retirement as being a 30 year or more holiday. Yet we spend more time planning out a two week holiday than we do planning for 30 years in retirement.

Planning for your two week holiday, you would have planned the precise experience you wanted, relaxing or adventure. The length of time. Mode of transport to get there and booked, accommodation and what to pack. You get the picture…

So why are you leaving one of the most important transitions in your life to chance?

In all my two decades advising people to prepare for this important transition, I’ve never had anyone say, “we should have left it longer”.

In fact, most say they should have come to see us sooner.

Being prepared allows you to gain clarity about the issues you need to address and the actions you need to take. Understanding the risks your exposed to.

Knowing the blind spots and gaps which require cushions or safety margins to protect you from life’s surprises.

While you may not be able to avoid every unforeseeable event, at least you would have taken action to cushion any potential blow.

Being prepared gives you the confidence to step forward towards retirement knowing you have everything in place and taking the right actions.

It also leads to having control over your retirement. When work becomes optional and it’s your choice to continue working.

Ultimately being prepared is good for your health. It lowers anxiety and leads to less stress at such an important transition in your life. Which can only improve retirement enjoyment.

Leaving you free to go out and live life on your terms…

Not being clear about what you want out of retirement 

Many people we meet are vague about what they want out of retirement. They’re not sure what their income requirements need to be. Perhaps they want to travel, but many have not clearly defined it.

It’s difficult to plan well if you are not clear about what you want out of retirement. It has a flow on effect on the amount you need, tactics and strategies you use and the amount of risk you expose yourself to in your plan.

Roy Disney once said. “When your values are clear, your decisions are easy”.

Many don’t have the framework to think through this important phase of their life. That’s why we take the time to help clients frame their retirement as the very first step. Help them clearly define what’s important in their retirement years via a very deliberate process.

Once defined, you are better equipped to define your financial needs in retirement. Which will then dictate what tactics, strategies and risks you need or don’t need to take.

You might be thinking, “But I don’t know what things will look like in 10 years time”.

That’s okay, your plan needs to be nimble and robust enough to adjust with the many twists and turns life presents. Dream big and work back from there…

Accumulation vs Decumulation Mindset

We’re taught all our working lives to save, accumulate and maximise your investment returns. After all, that’s how you create wealth. That’s the focus for your working years.

However, unless you have a bucket load on money, maintaining the accumulation mindset may see you run out of money in retirement.

Preparing well for your retirement requires a change in mindset. One where the focus is on how you will extract your level of income in retirement without risking running out of money.

It’s something that is not talked about much, but something that must be adopted to successfully transition confidently into retirement.

Understanding Super Rules

I’m glad to say many are well informed when it comes to rules relating to super. However, implementing strategies seems to be challenge for many for varied reasons.

Some common strategies which have been underutilised are unused concessional contributions if your super balance is under $500k.

Spouse splitting contributions. This can be a valuable strategy for equalising super and getting more into super for lower balances.

Strategies to avoid leaving generous tips to the tax office. This can take time to implement, it’s why you need to be prepared and seek advice.

Having a younger spouse, using the super system to maximise Centrelink pension is one that is often missed.

Moving super into a tax-free pension at the right time.

Not implementing these types of strategies early has a compounding impact on your financial balances in retirement. To the tune of multiple to tens of thousands of dollars. That could be a nice overseas trip or two.

Exposed to more investment risk than you need to

In your working years, you can accept a high level of risk. After all you have your income to fall back on.

However, as you approach retirement, you need to assess the level of risk you are taking and whether it is still appropriate. Does it support your income strategy in retirement?

Many misunderstand this critical aspect of retirement planning, happy to retain their current option based on the return. We find many we speak to have little knowledge about the actual risk they are taking and the level they need to accept.

You could be exposing yourself to a risk you need not to which may impact you not only from a financial perspective but increased anxiety and worry in retirement.

We find many can accept lower risk without giving up too much in the way of returns. It’s critical to understand your numbers and understand the level of risk you need to accept vs what you are exposed to.

Not exploring Lifetime Pensions

You don’t know what you don’t know. Knowledge is power…

One of the biggest concerns for retirees is running out of money. No one wants to live in poverty in retirement.

To combat this and help provide income for life, Lifetime pensions may be something you need to consider.

Recently we worked with a client where they had approx $1.5m in retirement assets. We were able to improve their income position by $400k over their retirement. They would have three income sources. This was a massive improvement over what would have happened if they stayed the current course.

Not only were they able to increase the amount of income they’d receive, they were no longer at risk of running out of money. They had the confidence to spend freely and more than what they had planned on.

Not seeking professional advice

There’s nothing wrong with educating yourself about all things retirement. However, it’s unlikely to provide you with the expert knowledge to navigate your retirement journey safely and with confidence.

Maybe you think financial advice is expensive and not worth it. I’m not going to lie, financial advice is not cheap, but it may be the best investment you make.

Think about it for a moment, you sell your house. The commission is likely to be 2-3%. On a $1m home, that’s $20-30k just for selling a home.

You pay for private health insurance which can cost upwards of $6k pa. You take out a mortgage and your mortgage broker receives a commission of up to .70%. That’s approx $5k on a $750k mortgage.

If you have $1m in super, it’s likely your super fund is receiving $7-$10k to manage it.

If you go to the gym or have a personal trainer, this could cost $5-$7k pa.

In reality life costs money. But what you don’t know may be costing you more than any fee you pay a professional.

You should reasonably expect at least 2-3 times return on any fee you pay a professional. More often than not, we see a return well in excess of 10 times the fee we charge.

To be frank, if we can’t deliver at a multiple of our fee in return, we simply won’t work with you.

Ready to embark on your own journey towards retirement clarity and confidence? Take the first step. Reach out today and book your own Retirement Clarity Call by clicking here.

We’ll hop on a call for a quick chat around the current retirement challenges you’re trying to resolve.

If there’s a good fit, we’ll book in a zoom call where we’ll complete a retirement mapping session to help you better understand your retirement gaps and brainstorm ways to close those gaps and retire with more clarity and confidence.

Glenn Doherty – CFP – Financial Planner | Retirement Planning Specialist |Retirement Planning Made Simple for aspiring happy lappers and avid travellers within 7 years of retirement

We work with people in Adelaide and around Australia virtually via zoom!

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