Making poor wealth and investment decisions in your earlier years will certainly set you back a bit, but mishandling money in retirement, when you’re no longer earning an income, can have far more devastating consequences. No one wants to face a financial crisis during a stage of life that’s meant to be relaxing and worry free, so it’s more important than ever to make wise wealth calls during your golden years.
Below are five common money mistakes made by retirees that you should do your best to avoid to guarantee you enjoy financial security long after you’ve stopped working.
FIVE KEY MONEY MISTAKES TO AVOID IN RETIREMENT
1. Blindly trusting your savings will be sufficient
You may have started planning for retirement decades before you called it a day, but the planning shouldn’t stop just because the work does. If you choose to bury your head in the sand and simply hope that your funds will last, you run the risk of outliving your assets. Rather, as you approach retirement, sit down with a reputable financial adviser to reassess your strategy based on your personal goals, needs and circumstances (all of which may have changed since you first drew up a plan), and make the necessary adjustments to ensure your wealth is protected well into the future. Do the math so that you know, with certainty, that your funds will last you another 20 or even 30 years.
2. Underestimating the impact of tax after retirement
It’s a mistake to assume that being retired exempts you from having to pay taxes – one that could lead you to overestimate the amount of money you have available to you in your later years. While you may have saved on tax while making contributions to your retirement savings, once you stop working, any income you receive from a living annuity or other account withdrawals is still taxable. That said, retirees are entitled to a number of tax benefits, so it’s well worth consulting a wealth manager to learn more about tax relief options and ways you can minimise your tax obligations after turning 65.
3. Continuing to spend as though you’re still earning
Even if you’ve built up a sizeable nest egg, the reality is, once you’ve retired, your days of earning consistently are over, so it’s important to adjust your spending habits accordingly. Many retirees make the mistake of indulging in their earlier retirement years and spending far too much too soon. Many more fail to make allowances for the fact that while certain expenses fall away in your older years, others, like medical costs, rise. Of course, you want to be able to enjoy the fruits of your labour without worrying too much, but the idea is to do so responsibly. So, review your budget and cut back where you can – by, for example, moving into a smaller house that requires less maintenance or selling one of your vehicles.
4. Approaching finances too conservatively
It might sound counterintuitive but being too cautious with money can actually be very risky. Retirees who are risk averse and terrified of taking chances with their hard-earned funds often end up investing so conservatively that returns don’t keep up with inflation. It’s natural to want to protect your wealth in retirement, but it’s critical that your financial decisions still allow for growth and long-term gains – after all, today, many of us are living well into our 90s.
5. Being too generous with your money
You’ve worked hard for your money and you find it rewarding to be able to assist when friends or family members need financial support. But to protect your wealth as you age, it’s sometimes necessary to be a little selfish with your funds. Your number one focus should be ensuring a secure retirement for yourself and your partner, so you might have to rethink the donations you’re giving others (even your own children) in order to avoid depleting your savings.
While being aware of the mistakes to avoid in retirement is a good start, it’s always advisable to work closely with a wealth professional to guarantee the longevity of your money. As independent financial advisers with your best interests at heart, we at TRG can offer you personalised guidance on everything from investment to insurance solutions with the aim of securing your financial health well into your late retirement years.