Retirement may be decades away for many of us, but planning for it is something that needs to be a focus.
The Office of National Statistics previously raised the alarm on poor retirement planning among UK workers, which could leave many people having major regrets later down the line. And if you are one of those people whose dream it is to have a comfortable and fulfilling life once you’ve retired, here are some of the retirement blunders that you should be well aware of and avoid:
Underestimating the cost of retirement
Sadly, only one in seven people aged 56 to 65 think that they will have enough savings to really enjoy their retirement to the fullest. To avoid a future of financial struggle, one of the best things you can do right now is to rid yourself of the idea that retirement is cheap. If your goal for retirement includes travelling and pursuing different hobbies, you have to prepare for these pricey adventures as soon as possible.
In addition to these expenses, you would also have to think about how much your day-to-day life in retirement would cost. This way, you’ll be able to have an idea of how big your pension pot should ideally be to realise the retirement life you envision. Aside from cost, the other thing you shouldn’t underestimate is the time you’d spend in retirement. In some cases, pensioners find themselves out of money not because they weren’t able to save, but because they failed to anticipate how long their retirement life would be. Remember, overestimating the cost and years of your retirement will always be better than underestimating them and finding yourself in a financial bind later in life.
Solely relying on state pension
Although basic state pension is indeed offered here in the UK, it isn’t really advisable for professionals to solely rely on it in retirement. That’s because the State Pension is funded on a Pay As You Go basis — meaning to say, pensioners are reliant on the contributions of current and future workers. In the event that the current workforce is unable to support the rise in retirees and pensioners, you would have no choice but to live with a pension that’s been cut. Moreover, inflation can greatly lower the value of the pension you will receive from the state.
To keep yourself from being forced to accept a lower standard of living, don’t just rely on a state pension. Instead, boost your pension pot by applying for private pension plans. You can also increase your retirement income by reducing the fees and charges you pay at present, tracking down missing pension payments, and investing smartly.
Failing to diversify
One of the biggest mistakes professionals make is not diversifying when investing for their retirement — and here in the UK, many think of property as a ticket to comfortable golden years. For instance, you may be planning to buy a home to sell and downsize when you eventually retire, using the excess money from that sale to fund your retirement. And while it can work, the fundamental flaw in that plan is that you’re putting all your eggs in one basket. In this way, you’re not only entrusting your golden years to the movements of the property market, but you’re also exposing yourself to a great deal of risk that can put your hard-earned money to waste and cause bankruptcy.
When it comes to investing in your retirement, learn how to diversify your portfolio across assets and sectors. Aside from investing in stocks and bonds, buy safe haven assets like gold that can offer you some level of protection through any economic downturns. It would also be in your best interest to buy stocks from companies belonging to various sectors. This way, the rest of your investments won’t be affected by the fall of a single one, and you will have a better chance of retiring in comfort.
Not saving early enough
This is one of the most crucial factors that could determine whether you will have a comfortable retirement or not is time. The earlier you start, the bigger pension pot you will likely have at the end of your professional life. By saving early, you will benefit not only from having more time to save, but also from having accumulated more profit due to compounded investments and savings.
Ideally, saving up for retirement should start in your 20s. With time on your side, you wouldn’t have to take so much out of your income for your pension pot, effectively making saving easier. Aside from having an early start, your 20s should also be the perfect time for you to build good financial habits. Learn how to budget and record keep properly, take advantage of your employee benefits, understand how compounding works — and apply all this new knowledge to your retirement plans. You can also take this time as an opportunity to surround yourself with the right people that can encourage you to save up for retirement.