Six of the biggest retirement planning mistakes

Retirement should be a time to really enjoy life.

Jumping into your car or mobile home for a road trip, working on a hobby, or spending more time with your children or grandchildren, can all be things to look forward to when you’re freed of the responsibility of a full-time job.

Imagine being able to choose what you want to do, when you want to do it, every day for the rest of your life.

Unless, of course, you don’t have the money you need to make the most of your retirement.

If you worry that will be the case, some simple actions now can improve your financial situation.

Here’s some common mistakes pre-retirees and retirees make, and how you can avoid them.

1. Not having a financial plan

It’s true that many of us tend to bury our head in the sand when we’re confronted with unachievable numbers bounced around by retirement types.

But how accurate are these, and what does your ideal retirement really look like?

Will you need millions of dollars, or can you be comfortable on something much less?

While you can’t predict how long you will be retired, you can estimate how much money you will need a year by considering your budget now, and how it will change when you retire.

While a financial adviser can help you to make a plan, read on for more ideas about how not to sabotage your retirement.

2. Leaving large amounts of cash in low-paying bank accounts

Interest rates are at an all-time low, thanks in a large part, to COVID-19 and economic turmoil. So why leave the bulk of your money sitting in a bank account returning as little as 0.05 per cent interest?

Whether you are a pre-retiree who is focussed on building funds, or a self-funded retiree who needs income to live on, it pays to look for a more competitive return on your savings.

For those who have not retired, superannuation funds offer some of the greatest savings advantages, including a competitive interest rate and tax advantages while, for retirees, an income stream from superannuation usually beats bank interest hands down.

This government site explains how superannuation contributions and withdrawals are taxed so you can compare the pros and cons.

For those over 65, the downsizer superannuation contribution scheme can help retirees free up equity in their home and grow your retirement savings before embarking on the retirement of their dreams.

3. Not checking investment fund fees

While superannuation funds are a great way to grow your money, you may be unknowingly paying more than you need to in member or administration fees and that may be eating into your returns.

What seems like a little now, can add up to substantial costs over time.

So read your product disclosure statement, or call your superannuation fund, and find exactly how much it is costing you each year, for them to manage your money.

You can then calculate the effect these fees will have on your super balance at the calculator on the Australian Securities and Investment Commission’s moneysmart website.

You can also simply compare superannuation funds quickly and easily online.

As a general rule, industry superfunds, which benefit members rather than shareholders, tend to charge lower fees.

4. Not considering the Age Pension

Most people will qualify for at least part of the Age Pension. Yet many online tools ignore this important contribution to a comfortable lifestyle.

In the lead up to retirement, it’s important to seek advice from an accountant or financial advisor about how you can structure your assets and your income to maximise the amount of money you can receive.

Don’t make the mistake of not knowing what extra payments you’re eligible for too, such as a carer’s allowance, an energy supplement, or disability support.

For more information about the Age Pension, including eligibility and payments, see our story on How you can secure your financial future as you approach retirement age. 

5. Assuming you will stop working completely

Who says you may not still want to pursue an interest that makes you money?

Many retirees add to their weekly income with a side hustle, or some part time work.

Why shouldn’t that be you?

6. Not downsizing

If you are living in, and maintaining, a home that is much bigger than you need now your children have left home, you may be asset rich but cash poor.

The result is you have no money to enjoy day-to-day life, or treats such as a luxury holiday, or a visit to see family, while also spending more money on maintaining a large home.

We’ve put together some great advice for you about how you can use your home equity to fund your retirement.

SEE ALSO:

• How working seniors can use government schemes to boost their retirement nest egg

• How you can secure your financial future as you approach retirement age

Helen Hawkes is a business and lifestyle journalist who has written for clients including CPA Australia, Westpac, Colonial First State, The Australian Financial Review, QSuper and the Australian Institute of Superannuation Trustees. She has bought and sold five houses and is currently planning a comfortable retirement.