Avoid the 5 biggest retirement mistakes
Many people have a goal as to when they would like to retire and what they want to do in their retirement. To achieve this goal, it is essential that you carefully plan for your retirement to maximise your wealth and financial freedom.
There are some common, yet avoidable, mistakes that prevent many people from retiring ‘on time’. But with some careful consideration, you can steer clear of the mistakes that could derail your retirement plans.
1: Not understanding how much you need in retirement
By not giving careful consideration as to how much you need in retirement how can you even start to make plans?
If the assumption is too high, the goal of retirement may seem absolutely unattainable and the entire planning process is discouraging. If the assumption is too low, which is most often the case, the retiree could run into a difficult financial situation later in life and have to make drastic, unwanted changes.
As a general rule of thumb, you will need approximately 80% of your current annual income in retirement.
2: Disregarding Higher Health Care Costs
One of the most overlooked areas of retirement planning is estimating health care costs and including this in the calculation of income needs. For example, a married couple, both 65, who retired in 2012 will incur an average of $240,000 in health care costs alone in retirement. By overlooking this large potential outlay, retirees could feel strapped for cash in their most vulnerable years.
Often, people assume Medicare will cover these expenses in retirement but this simply is not true. Medicare costs to retirees are rising each year, so it’s important to know what to expect.
3: No Long-Term Care Plan
Anyone who has cared for an ageing parent knows first-hand the toll it can take on their loved ones and their savings. Both the time and money needed to provide quality care can be staggering, so it’s important to know your long-term care options and how you plan to pay for these expenses if you need to.
4: Not Saving Enough Then and Now
Don’t wait to start saving for retirement. The sooner you get started, the greater your chance of reaching your retirement goal because compound interest can work its magic. The key is to make saving for retirement a priority and to start saving a regular amount each month. Remember, payments into your pension are tax deductible so you can minimise your tax bill whilst setting yourself up for retirement.
5: Not Updating Your Retirement Plan
It’s important that you revisit your retirement plan every couple of years to ensure that it takes account of changing market conditions as well as changes in your personal circumstances.
If you would like to discuss your personal financial situation and retirement plans, give us a call today and we will be happy to help. You may feel that a SMSF will provide you with more control during your retirement. If so, we can offer you advice in setting one up.