9 things people do wrong leading into retirement

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Thinking about retirement can feel overwhelming for several reasons. What are you going to do with all that spare time, what else can you do to feel purpose and, most importantly, how are you going to fund it? Retirement by definition means stepping away from a job or business that may currently send you a regular income. It’s a scary prospect but one that, with careful planning, you can not only survive on but thrive on. So, if you want to be in the happy retiree club, take a look at some common mistakes that other people make when planning (or not planning) their retirement. 

1. Not having a retirement plan in place

This is a key fundamental – you’ve got to sit down and plan. In your plan you should think about your expected lifespan, what age you’d like to retire, where you’d like to retire, your health and wellbeing and the standard of living you’re looking to reach. 

In each of these sections you have to be 100% honest with yourself. We understand that these are uncomfortable questions to answer but with your goals and context in mind you can be realistic about planning your finances. 

2. Not understanding your income requirements

By this we mean, having a full grasp of your living expenses and spending throughout retirement. Based on your retirement plan, you can estimate general living costs and additional budget for activities that currently aren’t part of your everyday life. You might want to do a lot of travelling in your older age, for example – think about what that looks like and will cost for you. 

Move through each of the following aspects, noting how you’d like to live and what sort of costs you can estimate per annum for them. 

  • Home improvements 
  • Quality of household items 
  • Bills 
  • Internet/tech 
  • Clothes 
  • Travelling 
  • Health 
  • Leisure activities

3. Not understanding your capital requirements

Now this centres on the big question. When is the best time to retire? This all depends of course on if/when you have the capital to support your calculated income needs. Once you’ve calculated how much you’ll need per year you’ll be able to estimate ballpark figures. Below is a table that gives some insight into the capital needed to support your chosen level of lifestyle. Please note this is assuming that you own your home and owe no debt. 

If you’re worried about falling short and not being able to meet your income goals, there is also Centrelink money to consider. You may run out of money in your lifetime, however, you can receive supplements from Centrelink to support you. 

4. Late application for age pension 

Want to get the most benefit from Centrelink then file for Age Pension as soon as you can. You can file as early as age 66 if you are born before 30th June 1955 or between 66-67. 

Also, consider your spouse. If they are between ages 66-67 you may be able to access a larger benefit if the spouse retains as many savings in the superannuation environment. This is key as superannuation assets from someone younger than the pension age are not counted in the Centrelink calculation. 

5. Lack of investment savings – superannuation 

One of your best friends in retirement is compound interest. This accumulates over time – the longer you save, the more money you’ll accumulate. Generally, it’s posited that a 10-15% cut of your total income should go into retirement savings throughout your career. We have an easy-to-use tool that calculates your savings goal, giving you direction  

After July 2021, you can deposit up to $27,500 per annum into your super. Try to deposit as much as you can within this boundary as after you’re 60 and retired earnings are tax-free.  

We’d advise getting professional financial help to sort out your superannuation – it can get pretty tricky without it. 

6. Poor asset allocation – too much risk 

Having an unbalanced portfolio or simply leaving your funds in default investment options leaves you at high levels of risk. This can be used as a strategy when building wealth but when you’re nearing retirement it has the potential to devastate your financial standing. Getting advice from financial experts can help you to prepare for retirement, preventing you from having to suddenly lengthen your pre-retirement period. 

7. Poor asset allocation – too little risk 

Too little risk can be just as dangerous to your finances as taking too much risk. Investment is about taking measured risks which may fall in the short term but often provide long term gain. Ultimately you want to have a varied portfolio that includes some low risk and more volatile investments such as stocks. Trying to make the right choices without expert help can be tough. So we’d advise sitting down with an investment planner who can talk you through your options and advise on the best route forward. 

8. Poor tax planning

Some great news! You don’t have to pay tax on any income from your pension, earnings or investments, provided you meet the minimum payment requirements. So, to make your life even easier, we’d suggest focusing on building your superannuation fund so that you can live tax-free in retirement.  

In the 21/22 tax year (commencing July 1st 2021) you can make up to $27,500 of concessional contributions to your super or $110,000 of non-concessional contributions. Also, you can make a downsizer payment if you decide to move to a smaller house and are over 65. 

Finally, you could also be potentially eligible to access some of your super while working through a Transition to Retirement (TTR) scheme. If you’re interested Planning and saving for your super can be challenging without the right expertise so we’d always advise seeking professional financial help.    

9. Driving up debt

Finally, we have driving up debt. Of course, having any sort of debt is going to affect your financial position in retirement. It’s always good to have an emergency fund just in case you come into an unexpected expense you need to pay off. Also, we would advise paying off or at least making significant down payments on your overall debt. However, it’s important to balance debt payments with adding to your superannuation fund – ideally, it’s best to do them both simultaneously within your means. 

We hope this blog helped you to better understand the process leading to retirement and how to best prepare. As we’ve said throughout the blog, getting this right can be a little overwhelming so be sure to get the help of a finance professional to help you make the best choices for you.

Dane Jansen
Dane is a Managing Partner/Responsible Manager at Positive Dynamics. He embraces his leadership skills to provide guidance to his clients giving them the confidence and conviction to achieve financial success.
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