Top 7 retirement planning mistakes to avoid
Getting your retirement plan wrong could have significant consequences for you. As average life expectancy increases, the lucky ones among us may experience as many years spent in retirement as the years spent at work. Even if that's not the case, retirement is usually a considerable period of time.
When we talk to clients, retirement is often on their mind. It is common for people to want to retire early and most feel that the State Pension age is beyond the age they want to work to. Most of us have at some point seen a friend or family member not even make it to retirement before passing away, so generally people are conscious of wanting to retire and enjoy life while they are young enough and heathy enough to be able to do so.
Though we cannot help you with your health, we can help you with your financial plan so that when the time does come, you know what your situation will be. Hopefully, with good planning that will mean that you have the financial means to do all the things you have always dreamt of. Making mistakes with your retirement plan can be costly and impact not only yourself but also your family.
Here are my top 7 retirement planning mistakes to avoid:
-
Not having a financial plan
A dream without a plan is just a dream. For most people your retirement plan will not just magically come together, as it's something which takes years of thought to ensure you have what you need.
What you need may well be very different to what others around you need, so having a plan that is bespoke to you is the first step to getting yourself on track. Reviewing that plan at least annually and making changes along the way is what will keep it alive.
-
Thinking the minimum contribution will be enough
With auto-enrolment into pensions, its easy to think that you have a pension, therefore you have a retirement plan and will have what you need in retirement. Thinking that the minimum contribution into a pension will be enough is a mistake. Though it is undoubtedly better than nothing, just relying on the minimum contribution is unlikely to give you all the options you will later want, options such as retiring early or having enough money to allow you to live out all those dreams you have.
The reality is that a lot of us will need to pay in more than the minimum if we want to achieve our goals. The earlier we start this, the bigger the impact it will have.
-
Relying on the State Pension
Clients are often shocked when we tell them how much their State Pension will be and what their State Pension age is. Mine is 68, that's still a whopping 25 years away which means I'm exactly halfway through my working life. The thought of working for another 25 years and then having to live only on a State Pension is horrifying to me. It would barely cover my existence costs and would leave nothing for all the dreams I have.
Making my own provision for retirement is the only way I'll be able to retire early, and the only way I can have a retirement I'll enjoy. You can check your own State Pension age and entitlement here.
-
Relying on someone else
This is perhaps a controversial one but it's one we regularly see. The two typical scenarios are relying on a partner and relying on a potential inheritance.
Life is full of twists and turn, and I agree that having a crystal ball would make it significantly easier. But we don't. Life happens, divorce happens, illness happens, bereavement happens, and we don't always see it coming. All we can do is hope for the best and plan for the worst.
That's why we talk to couples who have a wealth imbalance about building up assets in their own right. A person who chooses to stay at home to raise children for instance shouldn't have to lose out on their pension just because they aren't working. It may not feel like it matters at the time, but it will matter in 15 years time if you get divorced.
Likewise, relying on a potential inheritance feels like building a plan on quicksand. Nothing is guaranteed to be yours until it actually is.
-
Not seeking financial advice
Clearly, I'm a Financial Adviser so I'm going to say this! But seriously, when was the last time you checked your pension? And even if you do check it, do you know what it is you are looking for? Do you understand how to boost your pot? Do you know how it's invested and whether it's appropriate for you?
We seek advice from professionals all the time. If I'm ill I go to the doctor, if I move home, I enlist the help of a solicitor, if I'm building an extension I speak to an Architect. So why is it that when it comes to our finances, we rely on google or our mate at work?
A Financial Adviser will help you plan as well as keeping your plan alive. Don't just sleepwalk into retirement and don't leave it too late. Get some help from an expert, I'm pretty sure your future self will thank you for it.
- Choosing the wrong option
When it comes to pensions there are always different decisions to be made. Perhaps the most crucial of these is when you come to retire and are deciding how to access the money.
Understanding the options and which are appropriate for your circumstances are what will help you make the right decision. If at this stage you get it wrong, you could risk exhausting funds, never maximising your pot, paying too much tax, not leaving funds to loved ones should you die.
Getting it wrong could be life changing.
-
Underestimating the length of your retirement
People often focus on the here and now, making decisions that make sense at the current time. As a Financial Adviser we offer the opportunity for you to look at several options and stress test them for you.
One of those stress tests, is to look at average life expectancy and the implications of you living beyond that. If you take too much money now, you might run out of funds later. You may also experience good health and want to live the life you love for longer, so we need to look at how you get the income you need to do that.
At Yorkshire Financial Planning, we use cash flow modelling to demonstrate different scenarios, so you know the pros and cons of each allowing you to make an informed decision.
In summary, whatever your dream of retirement looks like, planning for it is crucial as is avoiding making mistakes. If you take just one thing away from reading this, I hope it's the message to speak to a professional. Do not make huge life changing decisions without expert help.
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and the value may therefore fall as well as rise. You may get back less than you invested.
For more help and advice or to receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Yorkshire Financial Planning on 01482 275540 or complete our contact form here.