18 Oct 2023 | Blog

10 common financial oversights before retiring

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When we age, we’d love to believe we grow wiser, especially concerning finances. Unfortunately, Australia’s intricate superannuation and pension systems can trip us up. As a result, many Aussies approaching retirement often stumble on these pitfalls.

So, what are they, and how can you sidestep them?

1. Miscalculating the Required Amount

ASFA’s Retirement Standard estimates that couples need $69,691 annually for a snug retirement, while singles require $49,462. To support such incomes, couples should amass savings of around $690,000 and singles, $595,000. Anything less nudges retirees closer to depending on the age pension. Surprisingly, in 2015-2016, the median superannuation for households with heads aged 60-64 stood at a mere $337,100.

2. Retiring too soon

Aussies retiring now are likely to see their mid-80s. That’s almost three decades post mid-50s. An early retirement means figuring out finances for all these years. An uncomplicated remedy? Continue working. It lets you save more and pushes back the time you’ll start withdrawing.

3. Skimping on Super Contributions

Boosting your super through extra contributions can be transformative. Before you retire, consider strategies like salary sacrificing, spousal contributions, and availing government co-contributions. Naturally, stick within the permitted boundaries.

4. Overly Cautious Investments

While it’s typical for retirees to veer towards safer investments like cash and bonds, drastically reducing exposure to growth assets like stocks and property can deplete savings faster than anticipated.

5. Bulk Super Withdrawals

Yes, post-60, you can cash out your superannuation tax-free. But after that? Major withdrawals, like for a significant holiday or home makeover, can dent your future comfort. If you’re pondering substantial super use, consider the long-term effects.

6. Overestimating the Age Pension

Choosing to retire doesn’t automatically qualify you for the age pension. You first need to hit the pension age, which varies between 65-67. Then, there are asset and income tests to consider, which could reduce your pension amount. Remember, if your partner is still earning, it might further trim down the pension you receive.

7. Neglecting Estate Planning

Without a current will, enduring power of attorney, or a binding nomination for your super, you might be setting up a complicated situation for those handling your matters if something were to happen to you. Solution? Engage with an estate planning expert.

8. Overlooking Preservation Age and Release Conditions

You can retire whenever, but accessing your super has conditions. Generally, it entails reaching a preservation age, which falls between 55 and 60. Access conditions vary based on age brackets, and understanding them is crucial.

9. Dragging Debts into Retirement

Handling debts like mortgages or credit card dues can be challenging during working years and potentially overwhelming during retirement. Strategise to lower these debts, perhaps by consolidating them or even considering downsizing your living arrangements.

10. Overspending on Redundant Insurance

If you’re debt-free with no financial dependents, you might not require the insurance coverage you once did. As retirement approaches, review your insurance plans, especially since premiums can spike with age.

The Takeaway

Though we’d love a simpler life as we age, financial challenges can intensify. These financial missteps might seem small, but they can weigh heavy on your pockets. Engaging with a financial planner can tailor solutions specific to you, preparing you for a stress-free retirement. Remember, it’s never too premature to map out your golden years.

The information contained on this website has been provided as general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial adviser to consider whether that is appropriate having regard to your own objectives, financial situation and needs.

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