5 common pitfalls that put your retirement plans at risk

Imagine the scene; you’ve spent your entire working life living frugally, saving efficiently and investing wisely. You begin your well-deserved retirement financially secure and excited for the years ahead. The future could develop in one of two ways; the first could lead to sustained security and the financial freedom to enjoy your retirement as planned; the second could lead to the calamitous loss of that security and the ensuing stress that would involve.

The sad truth is that the things that lead people down the second path are normally preventable; it’s seldom investment market declines which are the cause of a failed retirement strategy. Here are the five most common pitfalls that you can avoid through careful planning.

1. Helping too much

We all have an innate desire to help our nearest and dearest, but helping too much can lead to damaging our own plans. It’s all too common for people to dip into their retirement nest egg to give money to their children, grandchildren and other relatives. There’s nothing wrong with helping out once in a while or giving gifts, but you have to know what you can afford and stick to your limits. Don’t be afraid to admit you can’t help!

2. Absence of a spending plan

One of the simplest mistakes to make is not planning your spending. A lot of retirees don’t know how much money is safe for them to spend in the early years and still ensure they have enough capital to last into their later years. Surveys suggest that people believe they can spend 7% or more of their savings each year safely, however, economists and financial planners say the spending limit is closer to 4%.

Everyone’s optimum spending plan will vary and, ideally, you should revisit your estimates on a regular basis to make adjustments.

3. New business ventures

Many retirees choose to continue working and producing income in some way. A lot may decide to start new businesses. If this is something you’re thinking about, be careful and separate most of your retirement assets from the business. Only risk capital that you don’t need to maintain your standard of living as a failing business can erode your retirement savings quickly.

4. Purchasing a second home

Spending your winters in the sun or owning your own little getaway may seem like a great idea, but it’s important to be realistic. A large portion of your retirement capital can be tied up in owning a second home, and there are often unanticipated costs involved. If you want a second home in retirement, make sure you have a generous financial cushion.

5. Unmanageable debt

Debt can sometimes be thought of as a financial management strategy instead of something to steer clear of in retirement. Some financial advisers may recommend investing cash to earn a potentially higher return than the interest rate of the debt, rather than paying off the debt altogether. It does, however, come with fixed costs and if those costs combine with unforeseen expenditures and start to exceed your fixed income, problems can arise. Avoiding debt during retirement where possible will help avoid financial uncertainty.

Please remember: the value of your investment (and the income from it) can go down as well as up. Past performance is not a reliable indicator of future performance. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

If you have any questions around this topic, please feel free to get in touch with us directly on 01789 263888 or email hello@charterswealth.co.uk.