Things to be mindful of with retirement planning such as procrastination, underestimating your financial requirements, and failing to update your plans as your circumstances and needs evolve.
How to avoid the common pitfalls to help ensure your retirement plans remain on track.
Retirement should be a time when we can kick back, relax, and enjoy the fruits of our labour. However, achieving a comfortable and worry-free retirement requires careful planning.
There are, however, some common pitfalls that can jeopardise our financial security in our later years.
Here, we’ll highlight six things to look out for with retirement planning, and importantly, how to avoid the pitfalls.
Retirement planning tip #1: Start early
When we’re young, retirement is one of the furthest things from our mind. As a consequence, we can put off planning for our retirement, thinking we have plenty of time. The truth is, the earlier you start, the more financially secure you’re likely to be during your retirement years. Compound interest works in your favour when you start saving and investing in your 20s or 30s. It becomes less impactful the closer you get to retirement age, so start early!
The fix: Start planning for retirement as soon as possible. Set specific financial goals, create a budget, and contribute regularly to your retirement savings. The power of compounding will reward your early efforts.
Retirement planning tip #2: Estimate your expenses
While it’s true that some expenses, like commuting and work-related costs, may decrease or disappear altogether, other expenses, such as healthcare and leisure activities, can increase upon retirement. Many people underestimate how much money they’ll need to maintain their desired lifestyle once their working life comes to an end.
The fix: Begin by estimating your retirement expenses. Consider healthcare costs, travel plans, and any hobbies or interests you want to pursue. Use calculators and consider speaking to us. We can help you create a realistic budget that takes all of those factors into account.
Retirement planning tip #3: Diversify your savings
Super is a valuable resource for retirement planning in Australia, but it is a good idea to not rely solely on it for your retirement income. The amount you accumulate in your super fund may not be enough to support your desired lifestyle during retirement, especially if you’ve made minimal contributions throughout your working life.
The fix: Diversify your retirement savings. In addition to super, consider other investment options, such as personal savings, investments, and property. A diversified portfolio can provide you with more financial security and flexibility in retirement.
Retirement planning tip #4: Account for inflation
Inflation is the silent killer of retirement savings. Over time, the purchasing power of your money diminishes, meaning that the same amount of money buys less in the future. Neglecting to account for inflation can lead to financial hardship during retirement.
The fix: When planning for retirement, factor in an annual inflation rate to ensure that your retirement nest egg will be sufficient to cover your expenses. Make sure your investments can at least match, or better still, outpace inflation to preserve your wealth.
Retirement planning tip #5: Reduce debt
Carrying a significant amount of debt into retirement can be a major burden. Mortgage payments, credit card debt, and other loans can eat into your retirement savings and limit your financial freedom.
The fix: Aim to reduce or eliminate your debt before retiring. Pay down high-interest debts first and consider downsizing your home to eliminate a mortgage or reduce living expenses. Entering retirement with minimal debt will give you more financial flexibility and peace of mind.
Retirement planning tip #6: Stay flexible with your plan
Life is unpredictable, and circumstances change. Whether it’s a change in income, health, or family situation, not adapting your retirement plan accordingly can result in financial stress.
The fix: Regularly review and update your retirement plan. Consider speaking with us, we can help you make any necessary adjustments. Be prepared to adapt to life’s changes whilst ensuring your retirement plan remains on track.
Retirement planning is a vital aspect of financial wellbeing. By starting early, estimating your expenses realistically, diversifying your savings, accounting for inflation, reducing debt, and staying flexible with your plan, you can set the stage for a secure and enjoyable retirement.
Remember that it’s never too late to start planning for retirement, and even small steps can make a significant difference in the long run. Seek guidance from us if you’re unsure about your retirement strategy, and always stay informed about changes in laws and regulations that may impact your retirement savings.
By taking a proactive and well-informed approach to retirement planning, you can look forward to that phase of your life with confidence and peace of mind.
* Based on KPMG Super Insights 2023 Report as at May 2023 KPMG Super Insights 2023 Report
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the Insignia Financial group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at January 2024 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. It is recommended that you consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) before you make any decisions about your superannuation. You can obtain the latest copy of the PDS (or other disclosure documents) and TMD by calling us on 132 652 or by searching for the applicable product at mlc.com.au. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.