20 retirement planning mistakes you must avoid
Retirement Planning Mistake #1: Not planning for retirement at all
This is the first and biggest mistake you can make. Many of us are so caught up living day-to-day, that we totally forget to plan for our retirement. There are many great Retirement Annuities and Pension Funds out there that can help you start preparing for your retirement. So, take the first step by researching your options.
Time is the only luxury that you don’t have when planning for your retirement. Don’t waste any more time and get started now.
Retirement Planning Mistake #2: Not knowing how much money you need to retire with
To get the most out of your retirement planning you must find out how much money you’ll need when you retire.
Look at how much money you’re earning right now, calculate all your debt and expenses and then speak to a financial advisor to find out how much you should be saving every month to have enough money for your golden years.
Francois Joubert editor of Red Hot Penny Shares
calls this finding your “Magic Number”.
He’s created a retirement calculator
that can help you find out exactly how much money you’ll need.
Retirement Planning Mistake #3: Failing to save your money
South Africans are among the worst savers in the world. According to Trading Economics, the household saving rate in South Africa decreased to -2.40 percent in the fourth quarter of 2015 from -2.30 percent in the third quarter of 2015.
More than three quarters of the money we earn, immediately leaves our bank account to pay off debts like credit cards, personal loans, cars and bonds. This is a scary statistic. So open a basic savings account and get into the habit of saving your money now!
Retirement Panning Mistake #4: Increasing spending after a salary increase
The only way that you can save for your retirement is to save a portion of your income. As your income increases, your savings need to increase too. This includes your annual bonus or 13th
cheque. If you want to have enough to retire on, you need to use this money wisely, take at least 50% of your bonus at the end of the year and put it away for your retirement.
When you get a salary increase, don’t spend more. Instead, increase the amount of money you save every month. A good rule of thumb is to put away at least 10% of your monthly income into a savings account.
For example, if you earn R30,000 a month, put away R3,000 a month to your retirement savings. It might sound like a lot of money, but the reality of the situation is, you have no choice. The last thing you want when you retire is to reduce your lifestyle and depend on your family to survive.
Retirement Panning Mistake #5: Ignoring your employer’s retirement planning options
Many companies offer retirement savings packages for their employees. This type of benefit gives you the opportunity to save for your retirement without any hassle. By taking part in this retirement planning exercise, you gain access to discounted services too. Most of the retirement savings plans offered by employers offer you reduced management fees and improved retirement benefits.
The benefit to you as the employer is that these plans usually have some tax-deductible component. So don’t ignore your company’s retirement savings options. Take advantage of it to the best of your ability.
Retirement Panning Mistake #6: Not assigning the right beneficiaries
When you start any type of retirement policy, make sure that you carefully select your beneficiaries. These are the people that will get your retirement money if you die. This is important, because if you don’t list your beneficiaries correctly, chances are that your money will go into a government managed estate that can take up to five years to pay the money out to the right people.
So, list the people that you know need the money and ask your retirement planning advisor exactly how much money each beneficiary will get if you die.
Retirement Planning Mistake #7: Not having a last will and testament in place
If you don’t have a will, get one now! Even though you may have listed your beneficiaries on your retirement policies, you still need to make sure that you have a will in place that clearly states who gets what. If you’re nearing retirement now, update your will at least once a year, this will ensure that when you die, all your beneficiaries will be well looked after.
Retirement Planning Mistake #8: Not telling your family about your financial situation
Chances are that if you failed to plan for your retirement, your family will have to assist you. If you have planned for your retirement correctly, your family will need to know what is going on.
In both circumstances, you need to play open cards with them about your retirement future. This will ensure that everyone is on the same page and that they have a clear understanding of what it is that you need when you retire. Let them know where your last will and testament is kept.
Retirement Planning Mistake #9: Supporting your family when you retire
Some of your children may think that it’s okay to continue lending money from you when you retire. They may feel that since you’re retiring, you’ll have something to offer them in terms of cash. Don’t let them take advantage of you. It might be difficult, but do your best to cut them off. At some point, they’re going to have to learn to fend for themselves.
Retirement Planning Mistake #10: Ignoring your retirement funds performance
Just because you pay a broker or financial services provider to help you plan for your retirement doesn’t mean that you should leave everything in their hands. You need to play an active role in managing your retirement portfolio.
Check how your retirement portfolio is doing every year. If you are unhappy with the returns, tell your financial advisor and make sure that they do everything they can to increase your returns. This is your money; you have a right to demand that they manage it properly.
If you are unhappy with the service and returns, don’t be afraid to tell them. If you are unhappy with the service you’re receiving, tell them upfront so that they know exactly what it is that you need from your retirement in future.
Retirement Planning Mistake #11: Check your management fees
Most financial services providers charge a reasonable rate for managing your retirement portfolio. This doesn’t mean you must simply accept the fees they charge you. Shop around, speak to many financial services companies about your retirement planning and ask them to show you exactly how much they will charge in fees.
Once you have a clear understanding of how much they will charge you, choose the financial services provider that offers you the best returns at the lowest possible fees.
Retirement Planning Mistake #12: Ignoring additional income streams
Most retirees find themselves in a serious predicament because they don’t have enough money coming in. That’s why it’s so important to increase the amount of money you earn while you’re still working. Now, I’m not only taking about your salary, I’m talking about finding ways to add additional income streams over and above your regular salary.
One way to do this is to invest in dividend paying shares. These shares pay you for holding them. Every year, you’ll receive a payout for holding these shares. Don’t spend this money, reinvest it. This way, you’re adding more money to your investments and increasing the amount of money you’re earning every year.
Retirement Planning Mistake #13: Not having a personal investment portfolio
A truly diversified retirement portfolio must include a personal investment portfolio of JSE listed shares. It adds an extra layer of protection to your retirement nest egg. If you have no idea where to get started with your investments, take a look at Real Wealth and The South African Investor publications.
Both these monthly publications are perfect to help you start investing starting today. Relying on your pension or retirement annuity is simply not enough, so get investing in the JSE now.
Retirement Planning Mistake #14: Not using your home to its full income potential
I’ve met a few people nearing retirement that have paid off their bonds and live on decent sized properties. If this is you, then you are in a great position to start generating rental income from your property. Renovate that old flat in the back yard into a retirement income money-maker.
Find a reliable tenant to rent the space in your property. Again, don’t spend this money but put it towards your retirement savings. This is a great way to make extra money when you retire.
Retirement Planning Mistake #15: Thinking you’ll never retire
I know many people near the age of 60 that can’t live without their jobs. They can’t see themselves sitting around the house doing nothing. So, they don’t plan for their retirement because they think they’ll work until the day they die.
This is a serious mistake. If this is you, then you’re setting yourself up for retirement failure. You see, the older you get, the less productive you’ll become. Your health could start failing you or you could be replaced by younger, more energetic employees.
So, not only will you lose your income, you’ll also have to find money to pay for increased medical bills.
Retirement Planning Mistake #16: Thinking you’ll never have to work again
This is serious mistake for most retirees. When you retire, you think it’s time to travel the world, enjoy your grandkids or start that lifelong passion of being a painter. The reality is, you might not want to spend your retirement working, but you’ll probably have to.
If you haven’t saved enough, you could find yourself having to take on a part-time job to earn an extra income. So, don’t think you’ll never have to work again. Keep on top of new developments in your career - You might need to use your life skills and expertise to act as a consultant or trainer.
Retirement Planning Mistake #17: Bringing debt into your retirement
It’s important to pay off all your debt before you entre retirement. Bringing personal loans and credit cards into your retirement is the quickest way to deplete your savings. So, put a plan in place now to pay off all your debt as quickly as possible before you retire.
Retirement Planning Mistake #18: Giving up because you started too late
The best time to start planning your retirement is right now. But even if you left it too late, don’t stop planning for it. You may need to make drastic changes like downgrading your home, car and lifestyle, but it’s better than reaching retirement, having no income and losing everything because you simply can’t afford it.
So never give up on your retirement planning, even if you think it’s too late.
Retirement Planning Mistake #19: Blowing your retirement nest egg quickly
You’ve saved enough money and you have big dreams of travelling the world. So in the first two years, you use your retirement money and spend it all on lavish holidays. Two years after you’ve retired, you realise that you’ve blown all your cash and now need to find a way of making ends meet.
By all means, enjoy your freedom, but spend your money responsibly. Craft a careful spending plan for your retirement money. You don’t know how long you’ll keep living after you retire. With life expectancy increasing, you need to make sure that your money lasts.
Retirement Planning Mistake #20: Setting unrealistic expectations
Be honest with yourself when you retire. You need to know where you’re going to live, what you’re going to eat and who you’re going to spend your life with.
Don’t set unrealistic expectations, thinking you can afford to buy a new beach house in Clifton, eating out at five star restaurants every night with your 18-year old bombshell on your arm. It’s simply an unrealistic expectation.
You might need to consider a cottage in a retirement village where your meals are prepared for you by a stocky grey woman wearing a hairnet. This is a perfectly respectable lifestyle that could be exactly what you need for your retirement.
As I’ve just showed you, there are many mistakes that you could make in your retirement planning, but setting unrealistic expectations could be the worst for your well-being. You don’t want to end up depressed, alone and hungry.
So invest and save your money now, nurture the relationships with your friends and family. This way you’ll find yourself living a happy fulfilled retirement that is perfectly suited to your lifestyle.
Let’s build your wealth together,