Planning for your retirement has never been an easy puzzle to solve. For most of us with mortgages and children, saving enough for our retirement is a big challenge. You see, there are many different views on how to make sure you have enough money to retire from, building a business, to investing in the stock market and more recently, build a buy to let portfolio. Either way you look at it, it’s not plain sailing for sure.
Over the last 30 years, we have worked with thousands of clients helping them achieve their retirement goals and we have seen all sorts of mistakes, which we would like to help you avoid. So here is our top list of 17 mistakes to avoid, so that you can enjoy your retirement doing the things that you really want to do.
- Not making any plans at all
Quite startlingly, we still come across some people who have absolutely no plans for retirement whatsoever. The reasons are usually, ‘the state will look after me’ or ‘I’ll be dead before I get there’ and ‘I plan to work forever’
- Not joining the employer sponsored scheme
In our experience we still find people who do not join their company scheme, even when the employer will contribute as well.
- Just not looking at what their pension is doing
We often see potential new customers that have not looked at their pension in any detail for years and years. If something was not working well, they would not pick this up until it was perhaps too late.
- Expecting the state pension to be sufficient to live on
The reality is that the State Pension is never likely to be anything other than a survival level of income. Even middle retirement income earners can see their income plummet in
- Taking money out way too soon
Current rules allow you to start withdrawing money from pensions as age 55 and onwards. For some there a perfectly good reasons, but for others, they start to take the money to soon and the danger is, that they can run out of money in retirement.
- Not keeping death benefit nominations up-to-date
‘Pension freedom’ were introduced in April 2015 and amongst other things, pensions are now permitted to pass onto the next generation if there are funds remaining on death. Without the correct nomination, the next generation could possibly face having to pay unnecessary tax
- I am going to work forever
Some want to and some don’t. The reality is this. As much as me people may want to, its often not possible. Technology changes, our ability to keep working, our energy levels diminish as we get older. For people that choose not to retire, they may ultimately be retired ‘off’ by someone else.
- Spending the lot
With the new ‘pension freedom’ rules now in place, we are already seeing evidence that people are fully encashing and enjoying it now. Fun as that may be, the chances are that those people will have only the State Pension to rely on in later life
- Investing all the eggs in one basket
Too often we see people who have their whole pension invested in one fund. The problem with this strategy, is that if that one fund does not perform, the entire fund will suffer.
- Spending too much too soon
We are already starting to see people withdrawn unsustainable levels of income from their funds and the long term implication of this is that the fund could either run out altogether or income will have to be reduced dramatically.
- Being too cautious too young
Some pension savers don’t wish to take a risk, which is understandable when close to retirement. However younger savers can afford to be a little more speculative and can ride out the ups and downs on the markets to their advantage.
- Being too aggressive for too long
The flip side of not taking enough risk is taking too much risk and this is certainly a problem if an aggressive strategy is still in place close to retirement. Any fall in the market could have a major effect on the income in retirement.
- Delay starting to save for retirement
I often here it said, ‘I don’t need to start saving yet, I’m too young’. The reality is that you are never too young to start. The longer you save, the better of you will be later on. Less of your income needs to be saved if you spread it out over a longer period.
- Investing too much
Sounds a strange one this one. Younger savers will most likely have debt such as mortgages. It’s important to pay these down first and as quickly as possible. I am often asked, ‘should I pay down my mortgage or pay into a pension’. Debt repayment should always be the priority.
- Under estimating how long you will live
This can be a particular problem if parents have died young. The temptation is to retire earlier and spend too much. Just because parents die young does not me you will.
- Overly optimistic on growth
In the current economic climate, investment returns are generally lower, the days of 10% returns year on year are long gone. That’s not to say that in some year’s growth of more than 10% can be achieved. To high an expectation of growth can lead to investors having to cut back their spending in later years.
- Carrying debt into retirement
Whilst debt in retirement is sometimes unavoidable, it should be a priority to be completely debt free when you retire. Debt is often an expensive burden to carry, so getting rid of it should be a priority.
Action Call
- Have a plan of action
- Work out your number – How much do you need
- When you need it by
- Put plans in place to achieve your goal
This article does not provide specific advice and you should always seek professional advice from a qualified adviser before making any decisions.
Contact Martin Dodd on 01902 742221 or email him at [email protected] if you would like talk about money issues.
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