The biggest faux pas for self-funded retirees
Whether you have been retired for some time or are still looking forward to the time you can step back, chances are there are important considerations you may have overlooked.
From planning and pensions to family and housing, these are the biggest self-funded retirement mistakes I come across, and some insights into how to avoid repeating them:
- Lack of a plan
Not having a retirement plan is perhaps the most basic faux pas, but often the most costly.
A detailed plan should cover things like:
- When you AND your partner will retire
- Where you will live (you may want to downsize, relocate, seek assisted living)
- Anticipated living costs (living situation, health, lifestyle)
- How you will spend your time (hobbies, travel, volunteering, time with family)
- Strategies to maximise investments and superannuation
- Tax minimisation strategies
Remember: failing to plan = planning to fail.
- Poor planning
Having a plan is the starting point, but it won’t get you far if it’s incomplete, not updated as circumstances change, or omits critical factors.
For couples, not considering age differences is a big mistake. One partner retiring before the other can have big shifts on financial and tax dynamics and even the relationship itself. Then there is end-of-life care, particularly if the younger partner is still working.
Not building in a safety buffer is another no-no. Too many retirees have been caught out by the high inflation of recent years, having calculated their anticipated income needs on much lower living costs.
Balance short-term and long-term goals: being overly conservative early on can limit your financial situation down the track.
And no plan is complete without contingencies for worst case scenarios – insurances, protections, back-up options.
- Insecure housing
Government data has long shown major differences in quality of life for retirees who own their home versus those who don’t.
Homelessness or insecure housing, the mercy of the rental market, and inability to customise your home as you age or if you need specialised support with disability or health issues are some of the challenges renters face.
Furthermore, public estimates of how much the average Australian needs to retire typically assume home ownership – meaning rent is not part of that calculation. That’s a huge living cost you may not have factored into your retirement planning.
- Unclaimed pensions
Contrary to popular belief, self-funded retirement and claiming a pension are not mutually exclusive.
You may be eligible for a part-pension, calculated pro-rata according to the value of your assets and other income. Claiming a part-pension, no matter how small it may be, reduces how much income you need to draw down from super – making it last longer.
Don’t fall into another common trap when applying – overestimating your assets. It’s easy to assume your non-monetary assets are worth more than what they really are, reducing how much pension you receive or negating your eligibility altogether.
- Depleted Bank of Mum and Dad
With home ownership increasingly out of reach for younger adults, the Bank of Mum and Dad is often sought to bridge the gap. How you do so will impact your own situation.
Giving more than you can afford can leave you overstretched. Missed loan repayments could see you fall behind on your own bills. Not putting agreements in writing can lead to disputes down the track. Having a loan guarantee called in could see you homeless.
Be wise about decisions you make here and don’t let heartstrings cloud your judgement.
- Suffering in silence
Elder abuse is a sad but significant problem. Given they have money in the bank, self-funded retirees are often the most vulnerable.
Its effects can be far-reaching, impacting your mental and physical health, financial wellbeing, social interactions, and quality of life.
Be aware of the signs that something isn’t right. If you recognise it happening to you – or someone you know – speak up and seek help.
- Forgoing professional advice
How much of the above details did you already know? Chances are, not all of them. And that’s just the tip of the iceberg.
Money is a complicated business and you simply don’t know what you don’t know, which is why seeking independent, tailored advice from a professional is so important.
A good financial advisor can help you identify new opportunities and manage risks you may not have considered, limit expenses and also work with your accountant to minimise your tax.
Helen Baker is a licensed Australian financial adviser and author of On Your Own Two Feet: The Essential Guide to Financial Independence for all Women. Helen is among the 1% of financial planners who hold a master’s degree in the field. Proceeds from book sales are donated to charities supporting disadvantaged women and children. Find out more at www.onyourowntwofeet.com.au
Disclaimer: The information in this article is of a general nature only and does not constitute personal financial or product advice. Any opinions or views expressed are those of the authors and do not represent those of people, institutions or organisations the owner may be associated with in a professional or personal capacity unless explicitly stated. Helen Baker is an authorised representative of BPW Partners Pty Ltd AFSL 548754.
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