We all want a happy and stress-free retirement with enough income to pay the bills. A retirement plan is a good place to start, and avoiding these mistakes is essential.
1. Failing to consolidate
Many Australians work a number of different jobs throughout their careers, but some fail to keep all their superannuation savings in the one account. This can have a disastrous effect on your savings and your eventual retirement income. Not only do you risk losing track of some of your money, particularly if you have changed names or addresses, but you are also paying extra fees and charges on all your accounts. A better approach is to consolidate all funds into one superannuation account after speaking to an adviser to determine the best one for you. This will cut down on administration fees and ensure your balance grows strongly over time.
2. Not having an emergency fund
Any plan for retirement should include an emergency fund – money you can access immediately. What will you do if you have a health issue? What if your spouse or one of your kids has an emergency? Will you have money set aside to cover those costs? Most financial planners suggest having enough cash to cover at least three to six months’ worth of living expenses.
3. Not adjusting for inflation
We know prices are forever rising, but the rate at which they increase is anyone’s guess. Power prices have been a good example in recent years, but there will always be some expense that rises at a rate much faster than predicted. This can present significant challenges when trying to work out your cost of living year on year. When you are working, the rises in inflation are offset by potential pay increases, but you rarely have that luxury in retirement, with the indexation of the Age Pension offering little respite. Although year to year it may not seem as if prices increase all that much, over a 20 to 30-year retirement, the differences can be drastic.
4. Helping family members
Whether it is your children, your grandchildren or your parents, at some point in your golden years you will probably be called on to help in some financial sense. While you will be happy to help with some life events such as weddings, the birth of children, divorces or health issues, you don’t want to fall into the trap of constantly bailing out your kids or you will find your nest egg whittled away very quickly.
5. Worrying too much
Retirement shouldn’t be a time of worry and stress. It should be a time to relax and enjoy life after years of working. Some retirees have trouble remembering the reason that they worked so hard to save. They had an idea of the life they wanted in retirement, but they worry so much about running out of money that it can consume their retirement. A comprehensive retirement plan can help you transition from a saving mindset and help give you the confidence to spend on the things you always wanted in retirement.
Are you comfortable with your retirement plan? What would you do differently if you had your time again? What suggestions do you have for others based on your experience?