5 SAV­ING MIS­TAKES TO AVOID

Pen­sion­ers of­ten only dis­cover too late that their sav­ings might not be enough to ad­e­quately sup­port them dur­ing retirement. fin­week spoke to a num­ber of spe­cial­ists to iden­tify the mis­takes typ­i­cally made in sav­ing to­wards retirement – and how to avoid t

Finweek English Edition - - FRONT PAGE - By the fin­week team

MIS­TAKE NO 1: DO­ING NOTH­ING OR THINK­ING YOU ARE TOO YOUNG

“If you do noth­ing you will have noth­ing. Do some­thing. How­ever small, it is bet­ter than do­ing noth­ing,” stresses Li­onel Karp, a retirement spe­cial­ist with Char­tered Wealth.

Wor­ry­ingly, many young peo­ple adopt an at­ti­tude of “I’m still young. I’ll worry about retirement later”. Then, sud­denly, later is upon them and they have lost many cru­cial years of sav­ing. “You are never too young to start sav­ing,” says Cer­ti­fied Financial Plan­ner Ricky Wil­liams of An­field In­vest­ment Plan­ning. “The cul­ture of sav­ing for retirement should start with your very first pay cheque be­cause this es­tab­lishes a habit of sav­ing. The sooner you start, the bet­ter your chances of a com­fort­able retirement,” Wil­liams says.

MIS­TAKE NO 2: MESS­ING WITH YOUR PEN­SION FUND AND RETIREMENT AN­NU­ITIES

Long ser­vice is mostly a thing of the past, with the younger gen­er­a­tion fre­quently chang­ing jobs. Not pre­serv­ing pen­sion fund con­tri­bu­tions by trans­fer­ring th­ese to the new em­ployer or to a preser­va­tion fund is, says Wil­liams, “financial sui­cide”.

Anne Cabot-Al­let­zhauser, head of Alexan­der Forbes Re­search I nsti­tute, says: “Treat your pen­sion f und as sacro­sanct. Wealthy or not, don’t mess around with i t. Treat i t as though it i s the only thing you will be able to l i ve on. “It is there to be your safety net and might be all you have if the rest of your wealth is wiped out.” A retirement an­nu­ity (RA) is the only retirement prod­uct that you are not al­lowed to touch be­fore age 55, Wil­liams tells fin­week. “But if you stop con­tribut­ing to your RA it be­comes paid up. While it car­ries on grow­ing, it does so at a re­duced rate. Not only will you suf­fer an early ter­mi­na­tion penalty due to non­con­tri­bu­tion, but you won’t have enough money at retirement.”

MIS­TAKE NO 3: FAIL­ING TO GET PRO­FES­SIONAL FINANCIAL AD­VICE

“Peo­ple don’t want to pay for ad­vice. Financial plan­ning

“Treat your pen­sion fund as sacro­sanct. Wealthy or not, don’t mess around with it.”

still has the con­no­ta­tion of sell­ing life in­sur­ance and risk. There is a mas­sive mis­un­der­stand­ing about the dif­fer­ence be­tween deal­ing with a life in­sur­ance agent and a financial plan­ner. The first deals with the risk side, such as death and dis­abil­ity and in­come pro­tec­tion. The lat­ter is a spe­cial­ist in retirement and financial plan­ning,” says Karp.

“Don’t try and do it your­self. There is a say­ing in law that a man who de­fends him­self in court has a fool for a client. The same holds true here. The con­cept of tak­ing and pay­ing for ad­vice is a crit­i­cal part of the ed­u­ca­tion process,” says Wil­liams.

A good financial plan­ner will plan for a client’s funds to pro­vide an in­come for life and even out­last them. This is gen­er­ally achieved by mak­ing sure that a client’s port­fo­lio is in­di­vid­u­ally tai­lored, well-bal­anced and di­ver­si­fied, which en­sures that a client’s money works hard for them and in their best in­ter­ests.

Di­ver­si­fi­ca­tion, both ad­vis­ers main­tain, is cru­cial. “You have to have a bit of cash, gilt, prop­erty and eq­uity and then you need to re­peat the same thing off­shore. As you get older, gen­er­ally eq­uity ex­po­sure is re­duced to more prop­erty cum in­ter­est-bear­ing re­turns in or­der to mit­i­gate risk,” says Karp.

MIS­TAKE NO 4: ELECT­ING TO TAKE TOO HIGH A PEN­SION DRAW­DOWN AND EROD­ING THE CAP­I­TAL

“You should al­ways aim to only draw down the per­cent­age in­come that your funds are pro­duc­ing, that way you will never run out of cap­i­tal,” cau­tions Wil­liams.

Tak­ing a high draw­down per­cent­age has the po­ten­tial to erode cap­i­tal and neg­a­tively im­pact the abil­ity of that pen­sion fund to pro­vide an i ncome for an i ncreas­ing l i fe ex­pectancy.

“Be aware of how much you are draw­ing in re­la­tion to how much it is re­duc­ing your cap­i­tal,” says Karp. “In an ideal world one should ob­vi­ously try and take as lit­tle as pos­si­ble, but sadly, this is not al­ways achiev­able.”

MIS­TAKE NO 5: IN­VEST­ING THE BULK OF YOUR SAV­INGS IN HIGH-RISK VEN­TURES AT A MA­TURE AGE

Too of­ten pen­sion­ers l ook­ing to bump up their retirement pots are se­duced by get- rich- quick schemes. The old adage, “If it looks too good to be true, it gen­er­ally is,” holds true.

“A ma­ture age i s ex­actly the time you l ook to con­ser­vatism, the ra­tio­nale be­ing that if things go wrong you don’t have enough time to come back,” cau­tions Karp. “A young in­vestor can bounce back from losses sus­tained by a high-risk in­vest­ment even if the mar­ket is down for 10 or 15 years, be­cause they have the time to come back from that.”

A good financial plan­ner will plan for a client’s funds

to pro­vide an in­come for life and even out­last them.

Anne Cabot-Al­let­zhauser Head of Alexan­der Forbes

Re­search In­sti­tute

Ricky Wil­liams Cer­ti­fied Financial Plan­ner An­field In­vest­ment Plan­ning

Li­onel Karp Retirement spe­cial­ist with

Char­tered Wealth

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