Saving for retirement seems incredibly easy to put off for another day. After all, it’s still a long time away isn’t it?
With everyday bills piling up, the kids education to save for and that family holiday you want to take, there are many excuses for spending your money on things you might need now, rather than saving it for retirement. But when that day comes, and it’s sooner than you think, you’ll suddenly find yourself wishing you had a solid retirement plan in place. Think of money you save for your retirement as money you’re saving for your freedom to do whatever you want later in life.
Be sure you don’t make one of these 6 common retirement mistakes:
1. Not having a retirement financial plan
Fail to plan and you’ve planned to fail. The biggest mistake you can make going into retirement is not having a plan in place. This is one of the most common reasons why retirees run into problems, as most people underestimate how much money they will need in retirement or plan and discuss with their partner what type of retirement they would like to enjoy. Whether your retirement plan is to spoil the grandkids or travel the world, the general rule of thumb is that you will need approximately 70-80% of your current annual income in retirement.
2. Putting off saving adequately for retirement
Many people view saving for retirement as just another chore and the common excuses of procrastination include “I’ll do it after I get a promotion”, “when I’ve paid off my debt”, or “after I’ve paid for my children’s education”. But when you keep putting it off it’s all too easy to get to retirement and find out you don’t have nearly enough. Make sure to set aside a portion of your income every month as early on in your career as possible, and if you claim a work bonus or save some extra cash, top up your retirement fund instead of spending it. Take full advantage of retirement and savings tax breaks and the many options for catch up savings and top-up funds, especially if you started saving late.
3. Don’t pick a retirement fund that you don’t understand
Retirement funds have a reputation for being confusing and complicated, make sure that the fund you choose and the risks and benefits involved have been explained in a way that you fully understand. This will enable you to make informed decisions about your fund and avoid any financial surprises when you start to draw on your funds.
4. Don’t scoff at getting help from professionals
Financial advisors can help determine how much you need to save for retirement, where to invest, and can create a financial plan that you will be able to stick to. Most people underestimate how much money they will need in retirement. If you’re a do-it-yourself type, ensure you fully research the products and options available, keep up to date with new taxes or laws that may be implemented and the launch of new fund and annuity options, to ensure that you are saving with the best possible outcome.
5. Not diversifying your portfolio
When a financial advisor tells you to diversify, it simply means that you shouldn’t keep all your money in one place. The old adage of “don’t keep all your eggs in one basket” is especially apt for retirement savings. That doesn’t mean that all your investments should be placed into high-risk, high-gain assets, but it also doesn’t mean that the bulk of your money shouldn’t be in a savings or check-accounts (or stuffed under that mattress). A diversified portfolio with a variety of funds, annuities and investments onshore and offshore is ultimately a safer and healthier portfolio.
6. Don’t cash out your retirement fund early
After building up your savings and finally retiring you may want to celebrate by splurging on expensive cars, extravagant meals and fancy vacations – don’t be tempted. You’ve worked hard and should enjoy yourself, but don’t empty your bank account in the first few months. You still need to be smart with your money, especially if you want to keep enjoying your lifestyle over many years and leave an inheritance for your loved ones. Don’t spend your savings from your pension/provident fund when you change employers – preserve the money, staying invested keeps your interest accumulating and money invested securely.