Worst ever retirement mistake to make, and how to avoid it

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There are many so-called experts who will tell you the shortcut to retirement bliss – avoid them at all costs. There are no shortcuts and there is no sustainable bliss. So, here is the unvarnished truth about the single most important thing that you can do to increase your chances of a happy retirement.

You’ve seen the advertisements and they promise a lot, while making it sound so simple; give up your day job, trust me/us with your money and the income will flow. Whether the strategy involves day trading, self-managed super funds, or managed funds, the promises are huge. But it’s critical to take a step back and consider what’s really important. And what you can actually do to improve your retirement outlook, by avoiding the single greatest error in retirement planning.

Research shows that most people do not have ridiculously high retirement aspirations – the idea of ‘retiring rich’ is appealing, but unlikely. Most of us hope to maintain a similar standard of living in retirement as in our working years. However, the main factor which prevents us from managing our money, expectations and the eventual outcome is ignorance. Yes, the single greatest barrier to retirement happiness is your ignorance of your own situation and the consequent inability to make wise decisions based on facts, rather than fantasies.

A bit harsh?

Not according to research, which continually reveals the ‘she’ll be right’ attitude most of us have regarding the fundamental needs of later life. Now this is not to criticise the many retirees who have scrimped, and saved to fund themselves, sometimes with Age Pension support. My mother is one such retiree and a great example to our family. But sadly, this example is not as widespread as it could be, so there is a lot to learn from old-style retirement planning.

So, what is this ignorance and how can it be avoided? While, it is related to financial matters, that’s not the whole story. Here are five manifestations of retirement ignorance and some questions, which may give you food for thought, and prompt you to change old habits.

1. Asset ignorance
First up, do you know, without recourse to your bank, super and other financial statements, your net worth today? And do you know your net worth, excluding your property (if you are lucky enough to own a residence)? Are you aware of your total indebtedness (again without checking the bank statement) and how much this costs you on a monthly basis? How about your credit card? What is the balance? Do you pay it off on time, or is a monthly interest charge the norm? How much superannuation do you have and how is it invested? How long will it last once you start to draw an income stream?

If you know the answers to all the above, you are in the minority.

2. Spending ignorance
How much do you spend on a daily, weekly, monthly basis? How do you record this? Or don’t you bother? Perhaps the greatest failing of most people who worry about their future retirement income is that they are ignorant of their actual cost of living now. They just don’t wish to think about it, as they suspect they spend too much and it’s simply too uncomfortable to contemplate this. The most liberating thing anyone in this situation can do is to simply write down, every day for four weeks, what they have spent, add in the usual recurring expenses (power, telecom, motor, household outgoings, etc.) and review these costs, rating them either essential, discretionary or frivolous.and the next step is to work on reducing the latter two. Until any of us know what we spend, how can we ever feel comfortable that we have our retirement finances covered?

3. Entitlement ignorance
There are many government entitlements available for older Australians, from state-based Seniors’ Cards, to energy supplements, in-home aged care and pension concession cards that offer reduced utilities, rates, rego and medicines on the PBS. Understanding which entitlements apply to you is critical to maximising your retirement income and independence. In particular, the assets and income tests associated with the Age Pension are ‘must-knows’ for all retirees and pre-retirees. It’s not enough to rely on a financial advisor to explain the rules – you really do need to try to understand them yourself in order to test your advisor’s recommendations. ‘Buyer beware’ remains the golden rule for any advice that encourages you to purchase a product, financial or otherwise. Ignorance of the rules is a poor defence when things go pear-shaped, as they often do – remember the Storm Financial debacle?

4. Accommodation ignorance
If you live in a home which is fully paid off, you have the major pillar of retirement independence sorted. However, many Australians are not in this position. Some still have high mortgages and some are renting. There are many ways of utilising the asset of the family home, including reverse mortgages, equity release products and downsizing. Understanding how such arrangements work alongside the Age Pension, and any private savings or superannuation, is very complex. But this is a critical equation that will enable you to accurately plan long-term income.

5. Relationship ignorance
This will seem an odd fifth factor in the fight against ignorance, but it’s possibly the most important of all. If you are in relationship and entering, or living in, retirement, it’s likely you will be seeing a whole lot more of your partner than before. It’s a long day if one or both of you are unhappy, particularly with each other. And often the root cause of such unhappiness is differing expectations of life in retirement. This is because you failed to sit down and ask each other what life would look like, how you would fill your days, which goals you hoped to achieve, how much money you would spend and on what, which sacrifices you would make and how large a part grandchildren might play in your new lives. Long-term relationships are based on compromise and this can be far from successful if you have no idea what the other half wants. So make sure this is the first conversation you have.

What about you? How do you rate on the five-part retirement ignorance scale? Or do you feel there are other more important things we often overlook?

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Total Comments: 34
  1. 0

    1. No
    2. No
    3. Nothing
    4. No house no rent
    5. Awesome

  2. 0

    Every article, workshop, Seminar, talk and/or Conference in the topic assumes that
    all senior people want (1) to keep living forever as if nothing different happens with retirement (2) there is a considerable amount of money to worry about investing ‘properly’ (3) how to spend 24 / 7 leisure hours in your life.
    The reality is that THE GRAND MAJORITY of seniors know that their spending priorities need to change from Day 1 of retired life.
    The lucky few might have paid their mortgages in full and THATS IT!
    So why dont every interested party concentrate on HOW TO ADEQUATELY BALANCE THE CURRENT AGE PENSION ALLOWING ‘RETIREES’ to work a couple of days a week without penalising them? at the moment you can only work for $6000 YEARLY without impacting in your pension. Reality is you need $12000 a year to make the pension right. So lets forget about Superannuations/ Savings /etc which only a few have to worry about! And try to make life for Seniors more meaningful, and less stressful letting them work some extra hours for an enjoyable retired period of time!

    • 0

      Agree – instead of punishing people who want to work later in life, (unlike politicians who are NOT subject to Asset or Income tests) – offer incentives. Is NO reason to continue to work, other than to pay taxes to the govt. Bring back the Pensioner Bonus Scheme – that will keep more people working and off the pension for a few years.

    • 0

      Agree – instead of punishing people who want to work later in life, (unlike politicians who are NOT subject to Asset or Income tests) – offer incentives. Is NO reason to continue to work, other than to pay taxes to the govt. Bring back the Pensioner Bonus Scheme – that will keep more people working and off the pension for a few years.

    • 0

      I don’t know where you get the figure of $6000. I can earn approx $160 pf without impacting my pension, but in addition there is a work bonus of $250 pf, making a total of (approx) $410 pf. (= $10 660 pa). So, Amapola, where does your $6000 come from?

    • 0

      sunnyOz politicians are not subject to asset or income tests because they do NOT apply for or get the Aged Pension.

      If there is no reason to continue to work other than to pay taxes to the Government, why then do you want to bring back a payment to keep them in work?

    • 0

      I stopped going to their talks. It was too depressing and their saving advice was unattainable. In fact when their requirements were so totally out of reach I just stopped caring about my excess super contributions especially when the GFC hit so hard.
      It was then I started doing my sums on my contributions vs interest returned over time and I realised the superannuation maths taught in school didn’t apply in the real world.
      I invested into super because my parents did so well from their super. However this is a new era and my advice to my children is to invest in real estate or the stock market and control your own future. The benefactors of our superannuation are the super fund owners – not us.

    • 0

      Yes Rosret. The small tax saving doesn’t justify the fees, charges, age constraints and sovereign risk today. The old style superannuation was good but expensive to buy. This government sponsored financial system gig is fast unravelling.

  3. 0

    when I was 24 I looked at giving up work for 2 years to complete my degree full time as a mature age student. I did exactly what this article suggested. I wrote down on paper every cent I spent for over a month, and I knew exactly what I really needed to live on as a student and I even factored in 2 holidays in the 2 years. I have continued this mentality ever since. But now as I am in semi retirment I am close to full retirement I have worked out the figures again. There are no surprises for me. I have moved into a retirement village where I very close to public transport and the village has a bus going to the shops every week day anyhow. The maintenance fee is quite low by comparison to other villages. I have everything in place financially. I should be able to live comfortably on the pension when that time comes.(even more so when I stop driving). SO this article is pretty much spot on.

    • 0

      ..that is, unless the govt changes the goal posts again. NOTHING is guaranteed, or even close to being permanent. Every time I have thought I was heading in the right direction (for retirement) – the rules change, and I am stuffed around.

    • 0

      Hey Leek,
      Your life story reminds me of the fable of Narcissus who spent all day looking at his reflection in a pool and eventually falling in love with guess who!
      Get a life, my boy!

    • 0

      Travelling man, why criticise someone who has had the sense to organise his life and finances. I applaud him for all that foresight . he is now a happy man. Obviously you are not because you weren’t
      able to organise your own life, and as for narcissism, what a pointless comment !

    • 0

      Well done leek. Taking the stress out of retirement is priceless.

      You also avoided the fear of the home being included in the asset test.

  4. 0

    This is not that hard. If you don’t drink, gamble or smoke, the pension is luxury living. Yes I own my own home, bought & paid for in 10 years of hard work.

    Budgeting is also a snap. I worked out all my fixed costs, rates, electricity, phone/net, car regos, house insurance & car insurance etc. years ago. 25 years ago it cost $300 a fortnight to cover all these costs, today it has risen to $450 a fortnight. I put $475 in the bill paying account each fortnight, & the rest is mine to spend or save as I wish. I never have to worry about the regular bills coming in, the money to pay them is there.

    I do put another $100 a fortnight into another account to another account to cover things like birthday & Christmas presents, maintenance, my toys, & things I would just like. It bought me a new electric start ride on mower recently. Nothing wrong with the 15 year old one, but the pull start was becoming a problem for the old back.

    If you have expensive hobbies or like traveling you’ll have to make provisions, but after 10 years working on & running tourist resorts, I have no desire for travel or restaurant, ever again. Just lucky I guess.

    • 0

      Hey Hasbeen,
      Are you Leek’s twin?

    • 0

      No just smart enough to do things the easy way.

    • 0

      Exactly the way I do it. No problem. All it takes is a little discipline

    • 0

      Nice one Has been, that’s what it’s about , being smart to make life easy. I too put money into an account for power, $50 a fortnight. My latest power bill received yesterday was $65, from Red energy,including Govt. rebate and solar. After paying , what sits there can be used for a meal out together,or any other purchase.

    • 0

      Food and household? Is that included in the first or second amount?

    • 0

      I do one thing a little different, I’m not big on the Christmas and birthday present thing. What with children and their partners , grandchildren and so on and whatever , presents can be a major expense . If the wife had her way each and every on would get a $100 present for birthdays and Christmas which would keep me working till I was 104 years old.
      Yep I’m retired a nice card is more than enough. Instead I spend the money on myself. Bonus

    • 0

      Tib, I agree with your wife. A lot of ours think the cards are a waste of money. We buy gifts and we factor that into our budget. If I know the card will be valued I add that. We do Christmas and birthdays and we score back as well as getting Mother’s Day and Father’s Day. Oh, and we do Easter too. I know pensioners who rent and they love to buy presents for their children and grandchildren. It is a joy to give to family.

  5. 0

    Retirement is not rocket science.

    We started preparing 10 years before the big day.

    Got the mortgage sorted, got house repairs sorted. Wrote a budgeting system to monitor expenses and also forecast future expenses.

    Nearer the time visited Centrelink to get advise on how to structure our affairs to maximise benefits, finally worked with superannuation people to plan our future drawdowns.

    Granted that I may be luckier than many but that does not negate the need to plan.

    You can maximise the quality of your future years only by understanding what you have, what you can spend and how long you need it to last for .

  6. 0

    Does Centrelink know Gigi?

  7. 0

    You can only earn $250 pf up to $6000 +/- yearly Gigi. So your $160 pf are under the $250 allowance. Its not plus.

  8. 0

    1. We put everything on our credit card but owe nothing as it is paid in full when due. It is a great management tool as it keeps track of everything, it buys you up to two months before being due. Everyone needs a budget. It gives peace of mind.
    2.i knew exactly what we spend. I make sure to get the best deals. I shop specials mainly. I avoid paying full price. This is my domain because I am limited physically. Huge savings to be made by knowing there is a cycle of when products are specialed even as low as half price or less.
    3. Entitlements are important as they reduce your expenses considerably. In Victoria, for example, car registration is half price for pensioners.
    4. It would be bad advice to think reverse mortgages are a good idea. Owning your own home gives peace of mind so why give that up.
    5. Lucky with this one. We both like the quiet life and get along well together.
    6. Other…..What is important to you pre retirement? I think I would have written something different to what I would write now? Reality sets in!

  9. 0

    Get your house paid off makes all the difference.
    If you expect to make the same money in retirement as you did while working, and your willing too wait until you can, you will be dead first.
    If you expect your wife to be happy with the money you get in retirement , yep you will die before you achieve that. No amount of money is enough but get some comfort knowing she will be comfortable after your dead so keep working real hard.
    I noticed one thing when I retired , I spend hardly anything and my retirement had no effect on my lifestyle. My wife on the other hand was very disappointed.
    Can’t please everyone. As I always say no one cares about the donkey that pulls the cart.

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