Biggest retirement mistakes you should avoid

Speaking with so many clients daily about their retirement plans, goals and dreams, and seeing how most people plan to set up their life savings for the retirement phase it is easy to see what works and what doesn’t.

So in today’s article I would like to go over often seen mistakes that lots of people preparing for retirement or those who have already retired make and why you should avoid making them.

The biggest mistakes people make in retirement phase:

1. Not understanding fully your eligibility for Age Pension

This article is dedicated to Age Pension eligibility during your retirement. In our opinion, it is crucial to find out your position in relation to the Age Pension and organizing your retirement planning around it. If you are eligible immediately when you reach your retirement age, your first job should be to maximise your benefit, with your money topping up your Age Pension payments. If you are not eligible immediately, you should know when that would eventuate and again, plan your private savings accordingly. The earlier you start receiving Age Pension payments and more of it, the lower your own spendings, therefore your money will last longer. The earlier you are eligible, the sooner you will also receive the Pensioner Concession Card with some amazing discounts and financial benefits.

Another issue that we constantly see is incorrect Age Pension payments being received by retirees. Centrelink office is busy and overwhelmed with work, so mistakes happen often. You should know your exact entitlement even before you apply and not just accept what’s given to you. So please check if your current entitlement is the correct payment you are actually eligible for. If unsure, or if you do not know how to maximise Age Pension for your benefit, book a meeting with a financial planner from About Retirement and we will assist you in setting up your perfect retirement.

2. Accepting default investment option in your super

This is a common mistake we see all the time, unfortunately most people do not pay attention to super until they get much older and the balance of their super becomes more substantial. Your investment choice will have huge implications on the final retirement balance. Each one of us has a different risk resistance, so your investment in super and outside of super should be according with your own risk profile and not some default that a super fund assigned for you. This is even more important during your retirement, as you need to structure your savings to ensure money will last your lifetime, so again the default option most likely will provide you with a default outcome, which may not be the most appropriate for your retirement.

3. Keeping insurance active in your super beyond your needs

Most people are not even aware if there is any active insurance cover within super or not. If you are close to your retirement age, you have savings and no debts, why would you need insurance such as life cover of disability cover. It is wiser to keep premium payments as part of your savings and grow you super faster. There are of course circumstances when you might need it, mostly in the situation when you have limited savings or outstanding debts, but if your assets greatly outweigh your liabilities, insurance is no longer needed. If unsure, just get advice from a qualified financial planner to assist you with this decision.

4. Not understanding and not applying for a concession card

If you are not eligible for a Pensioner Concession Card, you should check your eligibility for other cards, such as Commonwealth Seniors Card or Low-Income Health Card. Each of those cards provide benefits and concessions that could be worth thousands of dollars of savings in your retirement.

5. Not understanding your life expectancy

Retirement should be your time of joy and appreciating life and not stress over your money. It is a known fact that the biggest worry for retirees is not knowing if money will last the lifetime. There are financial strategies to ensure your money will last your lifetime and if you are not sure, just ask for advice. Knowing that your money will support you for as long as you are alive will only improve your retirement and provide a great deal of security and peace of mind.

6. Disregarding impact of inflation

In retirement, inflation is not your friend, cost of living increases from year to year and you need to structure your finances to ensure that your income can also increase accordingly with the level of inflation. That needs to be calculated and planned when structuring your retirement income streams.

7. Keeping super in accumulation phase

Once retired, why would you keep your superannuation savings in the accumulation phase. Your super savings if kept in the accumulation phase will always be subject to superannuation tax, 15% income tax and 10% CGT, while if you are eligible to commence income streams, those taxes will disappear and more profit stays in your account. Tax paid in super will on average reduce your returns by 1% annually, so why share it with the Tax Office, if legally you can keep the full profit?

Of course there are situations when it is beneficial to keep savings in super, for example some strategies for Age Pension outcomes, or if your super balance is greater that the amount you are allowed to move to a pension, so yes, as always there are circumstances when you should keep your savings in accumulation phase, but we see so many times retirees keeping money in the accumulation phase with no benefit to them and often detrimental for their overall financial planning. If you are not sure what you should do with your superannuation, keep it in accumulation of move to a pension phase, book a meeting with us and we can assist you in finding the best outcomes.

8. Cashing out your super

Unless there is a specific important reason, please do not cash out your super to keep savings in a bank account. Superannuation has benefits not available to you outside of the system, with incredible tax concessions, so before you cash out your super, please get advice to fully understand consequences and see what solutions are the best for your situation.

9. Forgetting healthcare costs in your retirement planning

Healthcare costs keep increasing as we get older. This also should be included in your planning. Whether you have a private health insurance of rely on Medicare system, there will be additional out of pocket cost you need to take into consideration. And then there needs to be a plan for a possible Aged Care costs at the very late stage of your life.

10. Not getting advice to maximise all possible benefits and ensuring your money will last lifetime

I honestly believe that a specialised financial planner, who is working with retirees day in day out, who understands financial strategies for retirement and who can maximise each benefit for you, can introduce a huge benefit for your long-term retirement outcomes. Discuss your options, see what benefits you could gain, organise your income with security and longevity in mind, choose your investment wisely with the help of a financial planner and you are set for a retirement of enjoyment and peace of mind.

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement