15 Retirement Planning Mistakes and How To Avoid/Fix Them
I remember when my daughter was in her teens. By the way she is 35 now so that was quite a few years ago.
She would be lying sprawled on the sofa.
Still in her dressing gown.
Taking a deep breath in and blowing it out again.
In that loud sort of way.
“I’m bored”. She'd say.
I can’t remember exactly how I responded.
It wouldn’t surprise me if I'd said something along the lines …
"Well, when I was your age we didn’t have …
I could go on but I’m sure you get the idea.
That didn’t help though.
In fact she wasn’t at all impressed and would just get up ...
still sighing and leave the room.
Recently I’ve spent a lot of time thinking about my retirement.
Not surprising really because I've reached that age ...
50 plus when you start thinking seriously about this stuff.
This morning for some reason I started to wonder whether retirement would be boring.
I then had this image of myself …
In retirement …
Sprawled on the sofa.
Still in my dressing gown.
Taking a deep breath in and blowing it out.
In that loud sort of way …
Wait a minute…
Haven't I already said this?
So I’m thinking.
I don’t want to be bored when I retire.
I’m even thinking do I even want to retire.
So what’s interesting is that over the past 10 or so years I’ve been focusing on the idea of retiring early.
Truth be told by the age of 55.
When I got into the world of home business and entrepreneurship it seemed that is what everyone was aiming for.
So I guess it became my dream too.
A borrowed dream.
But then I hit 50 and over the next couple of years suffered ill health and my desire to retire early grew.
It wasn't that I was looking for a luxurious lifestyle of traveling and doing what I want when I want.
I just couldn't see that I'd have the energy to carry on working until my retirement age of 67.
I recently came across the following headline in the Telegraph online:
“Don’t retire early, low income means you’ll get bored, minister warns”
The main point in this article is that many Britons are likely to suffer from “boredom, loneliness and poverty in retirement because they haven’t worked long enough to have a decent income.
This related specifically to people who leaving the workplace in their 50s due to ill health or caring responsibilities.
This struck a chord with me straight away. In my 40s I considered reducing my work hours to help care for my mum who was disabled and although lived independently was needing more and more daily practical help. Sadly my mum passed away suddenly when I was 49 but I still feel some guilt that I didn’t get to help her out more.
Then in my 50s my own health problems had me worried about my ability to continue working.
Fortunately, in May 2017 I took action and my health has been transformed as a result. All because I started to implement a simple morning routine.
That journey is still continuing but it means that I now have more options.
I’ve been doing a lot of research on retirement planning recently.
As I said it seems that people my age.
I’m 55 now.
Start thinking more about retirement because it feels as if it's just over the horizon.
To tell you the truth I’ve thought about retirement a lot over the years.
Up until 7 months ago I was still in my relationship of 20 years plus.
So any retirement planning was for two of us but was never made concrete.
Now that it's just one of us ..
I mean one of me …
I’m realising that there is stuff I should have done a long time ago.
Stuff I should have been thinking about.
I was beginning to think that now at 55 it was too late to start retirement planning.
However, instead of stopping at that thought I took a trip over to Google.
I typed in
“Retirement planning for over 50s.”
I was relieved.
It wasn’t too late.
I already knew I'd made a mistake in not getting started earlier but I wanted to know
what other mistakes I was at risk of making and how to avoid them.
I didn't realise there was so much information out there.
So that you don't have to go trawling through dozens of sites as I did I brought together 15 Retirement Planning Mistakes in no particular order.
Retirement Planning Mistake #1 Not having a written plan
I have done so much goal setting over the years yet I can't believe I never thought about creating a written plan for my retirement. Over the years I have thought about what I may want to do in retirement. At various points I have dreamed about buying a home by the sea or in some remote area surrounded by woods. I’d even dreamt about retiring early and running a small guest house by the sea.
At 54 when my 22 year relationship came to an end these plans seemed to melt away. Although to be honest even if I was still in that relationship it is unlikely that those dreams we had would have come true. We never had anything written down. We never did the maths. We didn’t calculate how much money we would need and consider how much our pensions would pay us.
I now understand that I need to know my current expenses and what they are likely to be once I retire. I cannot assume my expenses will be the same, less or more. I need to know exactly how much income I need to cover those expenses. If my retirement income sources are not sufficient what do I need to do? What are my options? What if I become ill? What will that cost me?
Solution: Create a step by step financial plan alongside a retirement plan
Retirement Planning Mistake #2 Underestimating health care costs
Along with finances I think the next big worry is health. I’ve had major health challenges the past few years and at one point thought that I may have to give up my job. As I visualised my retirement I saw myself either using a walking stick or being bound to a wheelchair. I’m fortunate that I decided to take control of my health and I’m experience higher energy levels and my mobility has improved. However, I am aware that as I get older my health will deteriorate and I may need either practical support or aids.
Solution: Include health care costs in your retirement planning
Retirement Planning Mistake #3 Not planning for the unexpected
So I’ve been doing a lot of research about retirement planning. I’ve even put together a Retirement Planning Checklist. The thing is that things and circumstances change. 6 months ago my 22 year relationship came to an end. So my retirement planning prior to this time was all tied up in me being part of a couple. Of course that has all changed now.
So my retirement plans have had to change but I’m also thinking that even once I retire things will continue to change. It could be my health.
I've friends who have had to take over care of their grandchildren unexpectedly. Some people expect to live in their family home through to their retirement but all this can change suddenly. When a relationship comes to an end one partner may want to remain in the family home and buy out the other. This means taking on a new mortgage for a longer term. Some people find themselves in financial hardship if their circumstances change again and they don't have the income to cover this expense.
Solution: Review your financial situation annually and expect the unexpected
Retirement Planning Mistake #4 Not saving enough
I have saved and I haven’t saved. It wasn’t until recently that I started to make saving a habit. The truth is that people find saving boring. I found this quote helpful:
“You’re either saving for retirement today or you're consuming your retirement today.”
Although as the years past I would think about my retirement I didn’t really take it that seriously. I knew I would get the state pension and I pay into a public sector pension scheme. I also have a private pension that I paid into for about 12 months. Oh yes, and a lost pension I paid into during the period I was a teacher. I didn’t really think about saving outside of this towards my pension. It is not until more recently that I’ve started to regret not paying more attention to saving to top up my pension. I’d got to the point that any savings I did have had been eroded completed.
During a period of illness I believed that my health might force me to leave my job early or take early retirement if that was an option. I realised that if I was to leave my job I had no savings or buffer between that time and the state retirement age. I realised that failing to save meant I had no buffer for myself. I also believe that as I got older, in the back of my mind, I was thinking that it was too late to save any significant amount that would make a difference. It was also my mindset that I didn’t have enough extra money to put a reasonable amount aside.
A few years ago even though I was struggling with mounting debts I decided to have an automatic payment of just £10 per month going into a savings account. The balance has not grown significantly because I've dipped into it from time to time. However, what it has done for me is to create a savings habit. This year I started to follow T Harv Eker’s 6 Jar savings system. I set a goal to build up an emergency fund. To help me I've put myself on a "no spending" challenge. I'm already astounded at how much I've been able to save in a very short period of time. I still have that £10 per month automatic payment into my savings account separate to my 6 jar system.
Saving for retirement is not about making sacrifices but about redirecting your priorities. I’ve learned that retirement planning is not about whether or not to consume but when to consume. I wish I’d started saving that £10 per month in my early 20s and taken advantage of compounding.
Solution: Start saving immediately no matter how little and no matter your age and be consistent so you develop that habit of saving.
Retirement Planning Mistake #5 Start saving too late
You may be in your 50s or even older and believe that you’ve left it too late and so there is no point starting now. The truth is that starting late means that you've not been able to benefit from the compound affect on interest on your savings over the years.
However, you still have options no matter your age. Look at what you do have and make sure that you are maximising it. At 55 I've prioritised my personal finances and I'm focused on living within my means now so that I can have comfortable lifestyle in later life.
I'm considering delaying access to my pension to after eligible retirement age. I'm not going to depend on my company and state pension though. I've started a side business and I'll take time to grow it over the coming years.
Review your expenses and see what you can cut back on to give you some extra cash to start saving. If there is no give then consider working for longer so that you access your pension later and benefit from receiving a bit more. Can you get another job? If that is not possible what about starting a business on the side providing services or using the internet.
Solution: Work for longer or look for additional income streams
Retirement Planning Mistake #6 Don’t start saving early enough
I must admit that in my early 20s retirement seemed a thousand miles away. From my 30s onwards when I started paying into a company pension I believed that my retirement would be taken care of by the government state pension and my company. I didn’t consider the need to take some responsibility myself and grow my own savings for retirement.
During those earlier years when I saved it was towards my house, going on holiday and helping my children through university. I think that the times when I did consider my retirement I had more and more expenses and it seemed that I didn’t have that extra money to save towards retirement. Now I’m in my 50s and retirement doesn’t seem that far away I’m wishing that I had started saving a lot earlier.
The most valuable asset you have is time and that is what you need to take full advantage of compounding. I first learned about the power of compounding on your savings 10 years ago but as I said retirement wasn't my priority back then. The worry I’ve had is that I now have less time to accrue what I believe I’ll need to have a comfortable retirement. It is not money that builds wealth it is money multiplied by time. However, it is not too late. Although I do have a company pension and will get a state pension I have started to save consistently to top up whatever I do get once I retire.
Solution: Start saving now because it is better than not saving at all.
Retirement Planning Mistake #7 Retiring too soon
For many years I attracted to idea of retiring early. I heard stories of people retiring in their 30s, 40s and 50s. I had set my heart on retiring by the time I was 55. At the age of 54 I knew that this dream was not going to happen. Also at 54 I had an important life change. My 22 year relationship came to an end. It meant a complete review of my situation.
My first concern was how being single would impact on my financial situation once I retire. Splitting the proceeds of the house could mean me having to take out a new mortgage or renting which meant higher expenses. I would no longer have the benefit of having two incomes in retirement. After looking at the options I decided that I may have to work until the retirement age of 67 and surprisingly for the first time that felt alright.
In fact I the more I thought about it I realised that I want to keep working for as long as I can. It wasn’t that I wanted to retire early it was more that I wanted to have a choice about what I did past retirement age. I realised that if I chose to work for longer and not access my pension until later this would increase the amount I got once I did decide to retire.
Solution: Consider delaying taking your pension so that it continues growing.
Retirement Planning Mistake #8 Putting children’s education before your retirement
One of the things I wanted to do was be able to pay towards my children’s university costs. I was not in a position to do that for my daughter. I wanted it to be a different story for my son who is 17 years younger. Now at 55 with my sight on my own financial future, as I look ahead at my retirement, I have a different attitude. I’m no longer feeling guilty, as I did for my daughter, about not being able to help her financially. What I did do was expose her to financial education and I'm glad to say that she has not made the same mistakes and has avoided getting into debt.
My view now is that focusing on giving money to my son to fund him through university means depriving myself from building a secure future for my own retirement. If my son does go to university, as he wishes, he will end up with a large student debt. However, he has a whole working life ahead of him and will only be expected to make repayments once he is earning over a certain amount.
Solution: Prioritise funding your retirement
Retirement Planning Mistake #9 Having debt
I first fell into debt when my partner at the time left her job. We each had credit cards, bank loans and hire purchase agreements. Whilst we had two incomes coming it that was fine. With one income only we soon could not keep up with the monthly repayments. A mistake I made back then was to open 0 percent credit card accounts and move my credit card debts. Of course it came to a point when I couldn’t do that anymore.
It was when I had debtors calling me daily that I sought advice and wrote to each company and negotiated a repayment plan. It would take more than 10 years to pay off these debts and at the time it seemed daunting. More than 10 years later I have paid off most of those debts. The thing is that time passes.
I still have a few debts and a mortgage. Before my relationship came to an end 7 months ago I was expecting to have my debts and mortgage paid off before I retired. We were then looking towards a retirement without mortgage payments. Now that I’m single there is uncertainty regarding what type of property I’ll eventually live in. Do I rent or do I buy?
It will be about affordability as a single person and whether I want to have debts going into my retirement years.
A mortgage is different to having credit card debt. At least I will not have any ongoing “bad debt”. Using a retirement planning checklist has allowed me to think about the expenses I may have going into retirement and at least take some action now. I’ve decided to top up my money now by adding a passive income stream. I want to clear my debt quicker, have an emergency fund and add to my pension pot.
Solution: Clear your debt before you retire.
Retirement Planning Mistake #10 Being complacent
I’m afraid that I suffered from this. Although I thought about my retirement and talked about it a bit. I didn’t give it adequate time because I thought that it could wait. It was always just beyond the horizon out of sight. I thought I still had time. I guess what happens to a lot of us is that we continue living our lives. We’re busy just getting by each day. Then before we know it another year has flown by. The problem is that once that time goes it is gone for good. Time is not like money where you can get more of it. Time is our most important currency but once we’ve spent it we cannot get it back.
When it comes to money more time gives us the advantage. Starting to save earlier gives us more time to create a larger pot of money for our retirement.
Solution: Start planning for your retirement today.
Retirement Planning Mistake #11 Being unprepared
Life happens to all of us. We’re in a particular situation today and then tomorrow life throws us a curveball and everything changes. When this happens we must be in a situation to course correct. Whilst I was in my relationship I was complacent and just assumed that as a couple we would move into retirement together. We’d just arrive there one day. When that relationship ended I found myself full of uncertainty about the future.
I didn’t have a personal financial plan let alone a retirement plan in place. I didn’t even know my “Retirement number”. I had to start from scratch in the middle of dealing with the emotional disturbance that a broken relationship brings. I now realise that even if I was still in that relationship the likelihood is that we would have arrived somewhere unprepared and potentially underfunded for our retirement.
Solution: Have annual reviews of your financial situation and retirement plan and course correct if necessary.
Retirement Planning Mistake #12 Depending on one source of income in retirement
This may be the state pension or your company pension. It is not unusual that people are expecting that someone else is taking care of their retirement planning. Now what we do know is that the government has less and less money to pay into the welfare system. There are less people paying in national insurance. Also companies are struggling to keep their businesses going. We’ve heard of employees losing their pensions for a range of reasons. So that tells us that you cannot rely solely on a third party to look after you when you retire.
I have been guilty of thinking that the government and my company pension will provide for me in retirement. That led to me being complacent too. I thought about saving for holidays and saving to help my children through university but not saving for my retirement.
I heard this useful analogy that retirement is like a stool (Saving Your Future) with three legs. The three legs each represent social security, company pensions and personal savings. So you don’t want to rely on one or even two legs because the stool will fall over. You need all three legs to ensure security for your future.
Solution: You need to have multiple sources of savings
(reference The Money Factor)
Retirement Planning Mistake #13 Thinking that you’ll be able to work forever
There is no such thing as retirement - true or false? I posted this question to my Facebook timeline and was interested in how people would respond. I know of people who want to work beyond their retirement age. I must admit I’m amongst that group too. I know that I want to be as productive as I can for as long as I can. However, I’m aware that my ability to work for as long as I can may wane as I get older and start to suffer from health and mobility issues. In fact, it was not so long ago that I was wishing for early retirement because my joints were so painful and it was a struggle to make it through the day.
I think it is important to be aware that your desire to work for as long as you can may be overtaken by deteriorating health as you get older. Part of my retirement plan is to generate additional income streams on top of my job salary now so that I have income whether or not I choose to continue working. I am passionate about writing and I love the medium of the internet to share my ideas. Consider what you can start doing now that you will be able to continue past your retirement. That can be a hobby, learn a new skill, volunteering or starting a business on the side.
Solution: Keep your options open.
Retirement Planning Mistake #14 Not having a legacy plan
I know that many people want to leave some kind of legacy behind them, whether that is money for their children or to their favourite charity. This is something that is important to me too. I want to be able to leave something behind for my children and grandchildren. Leaving a legacy behind is not just about money. I recently learned that a legacy is also about transferring family goals, dreams and history.
I’m now realising in order to do this I need to have a level of financial security that will give me a comfortable life and wealth as part of a legacy.
I didn’t really consider the importance of ensuring that money I’m earning now should also be making money for me and my family in the future.
I heard someone say the following:
“ You don’t want to be in a position where you outlive your money. You want your money to outlive you.”
It is not enough to know that you will have money left for your family when you die, you must have a plan for it, a legacy plan.
Solution: Devise an estate and legacy plan
Retirement Planning Mistake #15 Not linking all aspects of your life
You need to understand the big picture. Your life is not just you. Your life includes your family, friends, your passions, what you stand for, what you own, your retirement, your insurance and so forth. They are not all separate from each other. I must admit I hadn't really thought about this. It is not surprising it felt that I was being pulled in different directions.
Each aspect of our lives and relationships are linked to each other and there are interconnections between them all. You must understand how they complement each other. Also any potential conflicts. You have to be able to pull these all together to create a comprehensive picture of your financial life. When you are planning, it is not just about you and the here and now. It is also about your family and the future generation.
Solution: All planning starts with understanding the big picture
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The Freedom At 55 Project is my journey to become more money savvy following the breakup of my relationship in my 55th year. I share what I learn about saving money, retirement planning, pensions and living a simpler life. I want you to know there is hope. It starts with reconnecting with your true self and deciding to take charge of your life.