Retirement represents a whole new phase of life for a person, and it is one many people enter with a sense of uncertainty and trepidation. Our working lives bring structure and purpose, and the thought of losing that sense of routine can be alarming. In addition to that, there are concerns about being able manage financially following retirement, as inflation drives the necessary income level ever higher.
Putting together a plan for retirement can help to ease those financial worries while also giving people a stronger sense of what they will do with their time after they stop working. The process of planning can be a complex one though and it’s easy to make mistakes. Read on to find out what the common retirement planning errors to avoid are.Not putting a plan in place
1. Not putting a plan in place
This is the single biggest error – and by far the most serious one. Failure to prepare for life after you stop working can mean that you never actually get to stop working. At the moment, the savings needed for a decent retirement are estimated at £33,000 per year for single people and £45,000 for couples, but the state pension falls well short of that. This can leave you relying on a part-time job just to make ends meet, let alone live comfortably.
2. Trying to go it alone
Another very common mistake is to try to put together a retirement plan yourself. For most people, this will not go much further than setting up a private pension alongside the state one. That’s a good starting point, but retirement planning specialists in Chester or wherever you live will combine it with other income streams to help offset tax and inflation.
A professional will work out a plan with you in a properly structured way, starting with a discussion of what you want from your retirement. You cannot really plan properly unless you know what you want to do and what sort of income will be necessary for it.
3. Not increasing your savings when your income goes up
Retirement savings rates are considered to be what people take from their salaries to save towards their retirement. If you experience pay rises during your working life, you should increase the amount that goes into your pension each month accordingly. As long you have enough to live on, the rest should be put towards retirement.
4. Not diversifying your portfolio
Saving into a pension pot will be a key part of any healthy plan for retirement, but it should not be the only part. That is because cash savings can be particularly vulnerable to the effects of inflation. Inflation is a rise in the cost of services and goods, and it can mean that the value of cash savings becomes a lot less than it was expected to be.
The best hedge against inflation is to combine savings with intelligent investments in different classes of asset. A good retirement planner will put together a portfolio that mixes property investments with the likes of bonds or stocks, based on an evaluation of your retirement income needs and your tolerance for risk.
5. Paying too much tax
At the moment, people who are retiring can claim a lump sum pension pot in the form of a self-invested personal pension and that can seem attractive. However, it can be taxed at up to 75% and also has the potential to put you in a higher tax band, which will increase your overall liabilities. Part of any retirement plan devised by a professional should be tax minimisation strategies like taking this money in stages instead.
6. Underestimating your retirement years
People are living longer and that is likely to go on being the case, so retirements typically last a lot longer. That means more savings will be needed to ensure a good standard of living and that you will probably need ongoing investment income streams alongside your nest egg.
7. Not factoring in medical and care costs
The further you move into your retirement, the more likely you are to face health issues – purely as a consequence of the ageing process. That means the costs of treatment and care as you get older really should be among the matters factored into any retirement plan you put in place. Not including them can leave you facing a financial hole should you need long-term care or develop a serious illness.
8. Falling prey to scams
Sadly, there are some unscrupulous people about who will take advantage of the need for financial guidance concerning retirement. The best way to avoid becoming among the exploited is to seek advice from an established and reputable company that has been around for decades.
These are the traps to avoid when preparing for retirement, and working with an experienced financial advisor will help. Feel free to speak to us at Hartey Wealth Management about your retirement plans.
