8 Common Retirement Mistakes and How to Avoid Them
Retirement is a time many of us eagerly anticipate—a chance to pursue new interests, travel, or even take on some part-time work or volunteer opportunities. With over 30 years of compulsory superannuation, today’s retirees often have more savings than previous generations, along with higher expectations for their retirement lifestyle. But with these opportunities come challenges.
As the government’s Retirement Income Review notes, the average retirement age in Australia hovers between 62 and 65 years. Meanwhile, life expectancy continues to rise, with today's 65-year-olds likely to live well into their 80s or even 90s. To fully enjoy your retirement years, it’s crucial to ensure your savings will last. The best way to do this is by avoiding some common and preventable retirement mistakes.
Mistakes People Make
While it’s impossible to predict every financial challenge that might arise, these eight common retirement mistakes are worth noting:
1. Not Knowing Your Living Costs
During your working years, it’s easy to let living costs slide under the radar as long as you’re receiving a regular income. However, once that income stops in retirement, you may find yourself unaware of whether your investment income or pension payments can support your lifestyle. Knowing your living costs before you retire can help set realistic expectations and guide your financial planning.
2. Ignoring Your Super Until It’s Too Late
If you’ve left your super invested in conservative assets throughout your working life, it may not have grown enough to support your retirement needs. Additionally, fees and insurance premiums might have eaten into your returns. It's crucial to regularly review your super to ensure it aligns with your retirement goals.
3. Underestimating the Impact of Inflation
For many years, Australia’s inflation rate hovered between 1% and 3%. However, during 2023 inflation surged to over 7%, driven by global events like the pandemic and the Russia-Ukraine conflict. This rise in the cost of living underscores the need to reassess your retirement planning to ensure your savings keep pace with inflation.
4. Not Understanding Your Government Entitlements
If you’re 66 or older, you might be eligible for a full or part Age Pension. Even if your wealth exceeds the pension limits, you could still qualify for other benefits like the Seniors Card, Pensioner Concession Card, income tax offsets, or stamp duty concessions. Understanding and maximizing these entitlements can make a significant difference in your retirement income.
5. Letting Market Noise Influence Your Decisions
Financial headlines often focus on negative news, such as market downturns, but seldom highlight the recoveries that follow. While market volatility is a fact of life, history shows that markets tend to trend upward over the long term. Sticking to your long-term strategy, rather than reacting to short-term noise, is often the best course of action.
6. Trying to Time the Markets
As investment legend Warren Buffett once said, "We haven’t the faintest idea what the stock market is gonna do when it opens on Monday – we never have." Trying to time the market, especially with your retirement savings, can be a costly mistake. For example, missing just 40 of the best days on the ASX 200 between 2003 and 2022 could have resulted in a significant loss of potential gains. Instead, staying fully invested typically yields better long-term results.
7. Being Asset Rich but Cash Poor
Many Australians accumulate significant assets, such as a family home, but find themselves cash-poor in retirement. While your home’s value may have increased, that doesn't translate to readily available income. If your assets aren't generating sufficient income, you might need to sell assets, tap into home equity, or consider downsizing to free up cash.
8. Not Consulting Professionals
Retirement planning is complex, involving superannuation, investments, and ever-changing rules. Financial advisers, accountants, and other professionals can help you navigate these complexities and set you on the right path. A well-crafted retirement plan, implemented correctly, can provide financial security and peace of mind for your retirement years.
Start Planning Today
Whether due to a lack of time or awareness, too many people make these common mistakes when entering retirement, leading to unwanted financial surprises. Retirement is a phase of life you’ve likely looked forward to for years, and it deserves careful planning.
At Newcastle Advisors, we're here to help. If you’d like to review your retirement income needs or develop a comprehensive plan, please don’t hesitate to contact us. Together, we can ensure your retirement is everything you’ve dreamed of.