Most of us look forward to our retirement, imagining that we'll get to relax more, stress less, and tick off each and every one of our bucket list dreams.
Retirement should be a welcome reward for your long years of hard work, but unless you prepare now and avoid these five biggest pitfalls, you may be in for an unpleasant surprise.
1. Not planning for the unexpected If there is one thing you can be sure of in life, it is that the unexpected can, and will happen. Unexpected costs during retirement, however, can be particularly devastating because your income is tighter. Always stay one step ahead and consider these common unforeseen expenses:
Car and home repairs/maintenance: Everyone has a car accident from time to time or an unexpected maintenance issue that comes up. Don’t forget that your home and appliances also age with you, so be prepared for sudden repairs or purchases.
Medical costs: These are the most troublesome for retirees, as medical challenges can occur more frequently at an older age, and not everything is covered by health insurance.
Divorce: Splitting up at retirement age is rare, but it does happen, and it can throw a huge, costly wrench into your retirement.
“Boomerang” kids: This term describes an increasing trend with younger generations having to move back in with their parents after college or even later in life. 2. Thinking 10 per cent will get you through retirement Is ten per cent of your income realistically enough to retire on? The truth is that you will need a substantial nest egg after 65, and ten per cent is probably not enough. According to Wharton University’s professor of insurance/risk management and business economics, millennials, in particular, should aim to set aside nearly half of their income for the future.
Of course, everyone’s retirement lifestyle looks different. You can create your own ballpark annual estimate based on what you live on now and what might change when you retire. Once you have an idea of your total retirement spending, use our pension calculator to calculate the gap and determine your savings needs. 3. Not having a savings plan Saving money is a concept that most people believe in, yet so few manage to practice. With the cost of living on the rise, you may feel there is nothing left to put aside at the end of each month.
Don’t give up. As with everything in life, the key to saving money is to take small steps and work on building a new habit. Focus on what you can save, rather than what you “should” be. Even putting aside as little as $10 a week now will grow to $400 by Christmas. As Frank Byrd, chief investment officer at Fielder Capital puts it: “Pay yourself first. I don’t care how broke you are…I don’t care how much debt you’re in.” 4. Spending too much now, and not saving enough for later Saving for retirement is about priorities and alternatives. Do you take that five-star vacation now, or do you choose a staycation and put the money saved towards your retirement fund? Is a brand-new car necessary now, or can you lengthen the life of your old car with a few low-cost repairs?
Building savings on unnecessary purchases now can mean the difference between a basic pension fund and a comfortable one. Thinking on a smaller scale, consider the daily morning coffee you buy.
$5 per day times 20 days per month for 50 years is $60,000 that could be saved for your retirement.
And that’s just coffee – imagine all the other places where your current consumption could be redirected to savings. As the saying goes, little by little, a little becomes a lot.
5. Saying you have plenty of time This is the most alluring retirement lie you can tell yourself. If you’re in your 20s, 30s, or 40s, then yes, retirement is a ways off. Even at age 55, it is still a decade away. However, time has a habit of moving along faster than you think. The longer you put off saving for retirement, the more difficult it will be for you to save. Consider the tips above, and start saving towards a happy and comfortable retirement.
There’s no time like the present – talk to us today about how you can start putting more towards your pension fund.