Six biggest retirement financial planning mistakes

You can see retirement on the horizon and it looks pretty good. But are you prepared?

Too many people move steadily towards retirement thinking there will be a seamless transition to the next part of their life.

However, the reality is, retirement is a massive lifestyle change, especially financially, so it pays to be prepared.

Here are a six of the worst retirement financial planning mistakes the nearly retired make – and how to avoid them.

Underestimating health costs

Sure, you’re 50-plus now and in reasonably good health, but is that always going to be the case?

Australia has universal healthcare, but it is not free of all costs. For example, MRI scans can range from $100 to $500.

And anyone with private health cover will tell you there are plenty of out-of-pocket costs with almost any interaction with that system.

There are concession cards that can help with the costs of healthcare, but they won’t cover a serious condition, especially if there are many allied healthcare services required.

As we age our healthcare costs will escalate, so when budgeting for your retirement, don’t forget to include expected health costs, not what it costs you now.

And if you do have private health cover, don’t pay a loyalty tax. Make sure you shop around for the best deal. As well as finding a better price, you may be able to shed some extras on your policy you no longer need.

Assessing your risk

If you have put your money in high-risk investments or volatile stocks, now is the time to reassess how comfortable you feel about your risk level.

While you are working, if you do suffer some financial loss, you have the income to fill the hole. That’s often not possible when you retire.

And it’s not just financial investments. If you own property, can you afford the maintenance?

Consider carefully your comfort around risk.

Two key questions to consider are: if you did suffer a loss, could you afford it and could you replace it with income, for example delaying your retirement?  

It could be time to shift your investments to more stable options.

Paper chase

One of the most important things you can do before you retire is update your paperwork.

Wills, trusts, insurance, healthcare and legal power of attorney and superannuation beneficiaries should all be updated. The paperwork for all your investments, including superannuation, should all be in one place and up to date.

Everyone hopes to have a long and happy retirement. But should the worst happen, it will make things so much easier for your family if all your documentation is in order and where they can find it.

And don’t set and forget. Wills need to be updated at least every 10 years or if there is a significant change in your life such as marriage, death or divorce in between.

Not optimising super

If you are approaching retirement age, you need to amplify your superannuation strategy.

Investigate all options to increase your contributions while you still can including salary sacrifice, personal concessional contributions, spouse contributions and downsizer contributions.

As well as maximising your super, there may also be tax concessions to be nabbed.

Failing to take inflation into account

Everyone seems to focus on mortgagees when it comes to interest rates and inflation. People considering retirement should also sit up and pay attention.

What will your money buy you in 10 years? Inflation causes the value of your dollar to fall over time, so your investment choices need to reflect that.

Healthy bank accounts may be reassuring, but they have no growth requirement and are losing buying power every single day.

Asking for help

The financial aspects of retirement and income are complex. Even just applying for the Age Pension can take weeks, if not months.

Unless you have a great deal of financial education, don’t go it alone.

YourLifeChoices OA Insights survey 2022 found that almost 60 per cent of respondents planned their own retirement. However, all evidence points to the fact that people who seek financial advice are almost always better off than those who don’t.

If cost is a factor there are many free services. Your bank, super fund and union may offer free advice and there is a wealth of information on the government website MoneySmart.

Are you planning your retirement? Are you going to seek professional advice? Do you know of any other retirement financial planning mistakes? Why not share your experience in the comments section below?

Also read: Super fund set to return millions to members

Jan Fisher
Jan Fisher
Accomplished journalist, feature writer and sub-editor with impressive knowledge of the retirement landscape, including retirement income, issues that affect Australians planning and living in retirement, and answering YLC members' Age Pension and Centrelink questions. She has also developed a passion for travel and lifestyle writing and is fast becoming a supermarket savings 'guru'.
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