While retirement should be the best years of your life, many Australians make simple, avoidable mistakes with their finances that can leave them dependent on the age pension and without the funds to truly enjoy life.
Christine Swanson, Founder and Financial Adviser at Prominent Financial, advises, “With some good advice at the start of retirement, these mistakes can usually be avoided, allowing retirees to focus on what is really important – simply enjoying life.”
Here are six retirement mistakes you should be aware of:
1. Giving Large Sums of Money to Children
Many retirees make the mistake of giving money to their children, feeling that they must help them, or feeling that they are going to get it someday that they may as well have it when they need it most! (Bank of Mum and Dad) Unless you have millions set aside, giving money to your children can be a huge mistake and could end up in you loosing valuable government benefits and maybe running out of money at some stage. The simple answer speak to your financial adviser before suggesting anything to your children.
2. Making Emotional Investment Decisions
Many people reach retirement age and panic that they don’t have enough money. This then prompts them to make high-risk investments in the vague hope of catching up on lost time. Too often, their dreams of big profits blind them to risks, and many end up losing a chunk, if not all, of their money. All retirement savings are irreplaceable and should be invested with this in mind, as the saying goes if it sounds to good to be true, it usually is.
3. Ignoring Your Portfolio
At the other end of the spectrum are retirees who think they have so little saved for retirement that it doesn’t matter what they do with it in terms of their investments. This is almost as big a mistake as taking excessive risks. No matter how much money you have saved for retirement, you should be proactive in making sure these funds are invested according to your attitude towards risk.
4. Miscalculating Your Retirement Funds
Many misjudge their retirement needs, and which investment structure would provide the best overall financial outcome. This is particularly the case when the decision is made to keep an investment property in retirement. The high value can often provide a false sense of financial security, while the actual income generated after all the costs can be extremely low. Understanding your various options and how Centrelink assess different investments is crucial, you may learn that a rental property may not provide the most flexibility, best returns and Centrelink access.
5. Changing Asset Allocations to Conservative Assets, Such as Cash
For many, retirement is the first time they have had to manage or decide how to invest a large amount of money. The fear of getting it wrong can be unnerving, and catastrophic. Throw in a small market downturn, and it is not unusual for people to panic and sell perfectly good investments. This is, of course, the worst option. By panicking and selling investments when the market has taken a step down, losses are locked in and any chance of recovering those funds as the market improves is lost, ensure you understand at least the basic fundamentals of investing.
6. Keeping Up with the “Joneses”
Too often, we’re swept along by what others do. Focus on how you want to live. Think about what will make you happy in retirement, and then invest your savings prudently so you can focus on enjoying life. For most, the things that make them the happiest are free. Time spent with family and grandchildren, spending time in the garden all cost very little money and are a fabulous boost to the body, health, and mind. But there is no question that financial stability provides us with more freedom, choice and flexibility to live a stress free lifestyle once retired.
A Final Thought
“Seeking professional financial advice can be the best investment you make in retirement. It helps you avoid costly mistakes and ensures you have a strategy in place to enjoy your golden years comfortably,” I’ve never had one client say I wish I didn’t have this much money, but I do have many stating that they never worry about money! says Christine.
By taking these precautions and seeking professional advice, you can prepare for a financially secure and enjoyable retirement. Our team are here to support you on your pathway to retirement.
