7 common mistakes to avoid when you’re planning your retirement

Category: News & United Kingdom

Planning for your retirement is a hugely important part of preparing for this phase of your life.

However, many retirees neglect to do so properly. And, as the old adage goes, if you fail to prepare then you must prepare to fail.

Not planning in the right way leaves you exposed to these common mistakes that many retirees make, ultimately costing them the quality of life they should have had in retirement.

So, read these common seven mistakes that many retirees make, and how you can safely avoid them.

1. Not having a plan in place

It may seem obvious but approaching retirement without a firm plan in place is the first mistake you can make.

You may think that there’s nothing to plan for – after all, you’ve worked hard throughout your lifetime, so now is the time to simply enjoy the fruits of your labour.

But actually, there are several key considerations you’re going to want to make, including:

  • When you want to retire
  • What you want to do
  • How you’re going to fund it.

These three elements alone can make a great starting point for making a cohesive, comprehensive plan with clear targets for the future.

Remember: everyone has different goals and ambitions, so this will be personal to you. There’s no right or wrong answer when you initially start formulating your retirement plan, but it’s crucial to have at least an outline of one.

2. Underestimating your life expectancy

The next common mistake you may make is in underestimating your own life expectancy. This is a potentially serious error, as it puts you at risk of running out of money.

Estimates for life expectancy will vary depending on your health and the kind of lifestyle you live. But even so, no one has a crystal ball, and you can’t predict exactly when you’re no longer going to be around.

The sensible solution to this issue is to make arrangements for different scenarios. Have a think about those goals you have for the future, and then put a rough estimate as to when you’d like to complete them.

Having done so, you can make plans for each outcome, knowing how you’ll use your money to support you if you live longer than you imagine you might – which you hopefully will!

It’s worth being wary of the other end of this spectrum, which is the present and very real danger of “underliving”.

This involves overestimating your life expectancy, ultimately living a more frugal lifestyle than perhaps you needed. You may then pass away having not achieved the goals you wanted, even though you probably could have afforded to.

Whichever one you’re trying to avoid, a financial expert can help you by taking a holistic look at your finances and then showing you the impact that different scenarios will have on your money.

3. Not having a clear idea of your future outgoings

Once you have an idea of what you want to achieve in later life, you can go about working out the rough cost of these things, so you know how much they’re going to set you back.

Next, do the same for your daily expenses. Include everything from essentials such as food and bills, to the “nice-to-haves” such as a gym membership or any streaming service subscriptions you have.

Finally, remember to consider how much you spend on non-essential luxuries, such as holidays and eating out, on a monthly basis.

By adding all these figures together, you’ll have a rough idea of how much your lifestyle is going to cost on a monthly and annual basis.

4. Retiring too soon

It may not seem like a bad thing to retire too soon – after all, are you really going to regret not going to the office for those final few years?

Unfortunately, the answer might be a resounding “yes”. There are two reasons that retiring too soon may not be right for you:

  • You might not be able to afford to stop working yet
  • You may not be emotionally ready to do so.

In either case, continuing to work right up until you’re truly ready and can afford to can be a better solution, even if you think you’ve had enough.

Alternatively, you could consider phased or partial retirement, in which you reduce your hours or move into a consultancy position as you gently wind down to finishing permanently.

Doing so can solve both your issues: it can be a good way to produce enough income to support yourself in retirement, while also allowing you to gently transition into later life, rather than having the sudden inertia of stopping immediately.

Working with a financial planner can be instrumental here, as they can show you what you can afford to do, and make recommendations that most suit your goals and personal circumstances.

5. Not considering all sources of income

Have you always intended to retire and live off your pension exclusively?

There’s nothing wrong with this strategy if that’s what you plan to do. But it’s worth at least considering all the different ways you could provide yourself an income in retirement.

The list below is by no means exhaustive, but it makes a good jumping off point for ways in which you could fund your retirement:

  • Pensions
  • Savings
  • Investments
  • Property

Rather than exclusively using your pension, there may be tax benefits to drawing income from these other sources if you have them available. Indeed, the best solution for you may even be a combination of all these elements.

This is an area where working with a financial planner is absolutely paramount – especially if you have assets in multiple jurisdictions.

A planner’s knowledge of all these different elements means they can show you which are the most appropriate for you, and how to best draw an income that lets you reach your targets.

6. Neglecting to discuss your plans with your spouse or partner

It’s such a basic error, but you’d be surprised at how many couples arrive at retirement without having discussed the future, only to discover that they’re now financially unprepared for the joint lifestyle they want.

You and your spouse or partner are a financial team, so you need to make decisions together.

For one thing, your spouse or partner might have different goals for the future. There’s nothing wrong with this; you’re both individuals and so may want to have varying experiences from later life.

The key is to build this into your plan. Discuss your future goals so you can make arrangements that mean you both get what you want out of your retirement together.

Crucially, you need to discuss your finances as soon as possible. Many couples treat money like something they shouldn’t discuss. But actually, planning together can give you a clearer picture of what you have to work with, and how you can use it to benefit both of you.

This may also allow you to maximise certain tax reliefs and allowances so that you both can enjoy your money together, rather than paying unnecessary tax bills when you come to take your income.

7. Not getting expert financial advice

Above all else, the biggest mistake any retiree can make is to not take expert financial advice first.

By working with a financial planner, you’ll know that all these elements are being considered and then pulled together by an expert, ensuring that you reach your goals.

That way, you can have the certainty that you’ll avoid these common mistakes, making the most of your money and living the lifestyle you want. This is particularly true if you have assets in both the UK and Australia as there could be serious implications if you don’t plan carefully.

At bdhSterling, we have a wealth of experience in helping clients with their financial planning.

Get in touch to find out how we can help you.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.