Pension planning: By failing to prepare, you are preparing to fail!
From obsessing about cash to not planning for upheaval, here are eight common mistakes to avoid. Retirement planning is generally not something we are good at.
However, failing to plan properly is a costly mistake and given that we are all living longer, it is more important than ever we have money set aside for retirement. Thankfully, there are some simple rules to follow when retirement planning and mistakes to avoid.
Here we have listed eight of the most common retirements mistakes - how many are you guilty of?
1. Not planning for life-changing events
If you are married or in a civil partnership and you get divorced, each person in the couple usually receives a share of any existing pension.
This may happen in the form of a cash pay-out or a share of existing assets, but it is worth bearing in mind as it could reduce the overall amount you have in your savings pot or depending on the outcome could boost your retirement slightly.
When you take out a pension, it is usually possible to make a declaration as to who you would like the pension to go to in certain circumstances, including death. This can be important if you get divorced when it comes to partners and children from previous marriages. Therefore, if you do not have anything like this, it is worth contacting your pension provider to find out if it is possible to set up, so you will know exactly where the money is going.
There are no guarantees when it comes to how much money you will get in your pension, and this is especially the case if a couple only has one.
2. Underestimating how long you will live for
One of the biggest reasons people are not saving enough for retirement is because it is seen as such a long-term saving.
Many do not realise how long they are expected to live for and therefore there can be a risk their pension pot will run out.
However, the precise age will vary depending on the person and therefore the average ages given will not always be accurate.
Average figures do not help because those who have more money set aside are generally likely to live longer. And do not even think of relying on the length of life of grandparents or parents: expectancy has been growing with each generation meaning there is every chance you are going to live far longer.
The best solution is to plan as though you are going to live until well over 100.The idea is not as far fetched as you might think.
3. Assuming it is too early to start
Many people see retirement as a long way off, yet one of the biggest mistakes people can make is putting off retirement planning.
In fact, the sooner you start saving and regularly reviewing your pension pot, the easier it will be in the long run.
4. Forgetting to review your plans
Many things can affect your pension pot, both in your personal life and global events.
Therefore, while it is not the most exciting thing to do, it is important to regularly look at your pot. Aim to do so every six months to a year.
That way you can spot whether your portfolio needs any changes made.
5. Not taking advice
How much financial advice will cost you depends on your own circumstances.
However, even if you cannot get it for free, it is definitely worth paying for.
Picking the wrong investments could make a big difference to your final pension pot and therefore seeking advice can help you make sure you are on track to achieve your retirement goals and have enough to live off when you stop working.
6. Holding too much cash/being too defensive
In retirement, one of the most common errors people make is to be too risk averse.
We are not talking about putting in all in the latest cryptocurrency or heading down to the nearest casino, but rather leaving at least some of your money invested. The golden rule of investing is that you need to hold your money for at least five to 10 years to iron out short-term volatility.
However, the average retiree currently lives well over a decade, so it is not the most drastic suggestion. Ultimately, you could argue that holding all your money in cash and savings is actually the risky strategy as it all but guarantees you’re going to lose money in real terms as inflation eats into your life savings.
It is always better to speak to a financial adviser before making any decisions.
7. Using your house as your pension
Many people think they can sell their home, move somewhere smaller and live off the profits in retirement. However, as the current pandemic has highlighted, you really do not know what seismic events lie ahead that could massively reduce the value of your most-prized asset. Added to this are the costs of selling one property and purchasing a new one so you may not make as much money as you think.
It is also worth saying that you are likely to have lived in your home for quite some time and by the time you come to retirement you may not want to leave it to go elsewhere.
8. Assuming the State Pension will cover you
So many people overestimate how much they will get from the State that we thought it worth highlighting in its own section.
While improvements have been made in recent years, a full State Pension is still worth less than £180 per week. While this may cover most of your bills if you have paid off your home, it is unlikely to provide you with much else, so it is worth looking at how you can make extra provision. And with the triple-lock on pension increases under greater pressure than ever before because of the pandemic, it would be risky to assume this will be enough on its own to cover your costs.
Make sure you contribute to a private pension to ensure you have a more comfortable retirement.
At Brian Mole IFA, our advisers can guide you through every step of the way towards retirement and during your many years of enjoying later years in retirement.