We looked at how you might handle your personal retirement income demands in the most recent Retirement Roadmap article, and we came to the conclusion that it is usually a good idea to get the right financial counsel. This serves as a good introduction to this week's topic, which is the numerous pitfalls that can and do occur while making retirement plans and how to avoid them.
Due to the total intricacy of Australia's retirement income system, unwary retirees and pre-retirees may commit a seemingly never-ending series of mistakes.
The outside world can be frightening! However, summarizing and learning from the kinds of rookie mistakes that cost people money is equally simple. These five very human shortcomings are typically the cause of these major financial errors:
Lack of awareness is not a sign of a lack of intelligence, but rather of how difficult it is to constantly be aware of every issue about retirement income.
Insufficient knowledge of asset classes and their yields
A long-standing human characteristic is procrastination.
Being overly self-centered and neglecting the most crucial aspect of everything
1. Not taking advantage of chances to maximize your super
This frequently occurs as a result of a failure to recognize possibilities and regulations. It commonly manifests in the early days of getting super, and during the pre-retirement phase, it gets worse.
It is simple to comprehend a propensity to be initially disenchanted with super. You work hard, you are young, and your company is legally obligated to deposit your super into the account of your choice, so everything is taken care of, right?
Not quite, that is. The growth rate of hands-off super is significantly slower than that of more actively managed savings. Therefore, avoid the error of believing that nothing has to be done. At the very least, ensure that you:
Review your insurance settings, chat to a fund adviser about your investment settings (they can be overly cautious), combine your super accounts, and look over your yearly statements.
For those who want to learn more about how super grows, this link will lead you to some excellent explainers.
Those who are not yet retired are at the second, later stage of risk, where they may lose out on chances to maximize their savings while they are still employed. During our hectic 40s, 50s, and early 60s, we frequently put our families' needs, debt repayment, and professional advancement first.
Therefore, it is simple to forget about the numerous strategies to optimize your super savings prior to leaving the workforce. To make sure you increase your savings as much as feasible, you can employ additional salary sacrifice contributions in addition to spouse and bring forward contributions.
2. Not fully comprehending the various asset classifications
Your super is invested in a variety of asset types, including bonds, cash, and property funds, as well as local and foreign stocks. Either you have chosen an investment setting that seemed appropriate at the time, or you have chosen a mix of investments by default.
Knowing what your settings are, reviewing them at least once a year, and determining whether a new setting could have produced higher returns for very little additional risk are all crucial.
It is also dangerous to move money out of super without considering the potential repercussions. You can access your super without incurring penalties once you reach Preservation Age, which is at age 60. However, you should not do something just because you can! Not everyone wants to retire at age 60 because the majority of Australian men and women will live into their 80s and beyond.
Relocating funds out of super is a significant financial choice that should not be made hastily. Some people withdraw money from their super and invest it in cash, which has produced returns in recent years that are less than half of what they would have received if the same funds had remained in their super funds. Transferring funds from a super environment, where they are tax-free if you have begun an account-based pension, to a non-super environment frequently results in a reduction in your earnings.
Get a second opinion if you are unclear about when and how to access super. Start by speaking with your fund's advisers, who may provide you with estimates of the potential longevity of your funds and the best ways to use them tax-efficiently once Preservation Age has passed.
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