5 most common mistakes new retirees make

18 Mar 2016

You’re on the verge of retirement or you’ve just jumped in. Either way, there are some financial mistakes you’ll need to be wary of at this point in your life.

1. Underestimating retirement costs

Now is the time to be realistic about what your retirement is actually going to cost. Remember, while you may have some income coming in from investments, you’re going to lose a big chunk of income when you retire from your job. And unless you make some changes, it’s unlikely you’ll be able to afford the lifestyle you’ve been living. A big cost many new retirees underestimate is healthcare. While keeping active and healthy will help, growing older is a fact of life, and unfortunately so are the ailments that come with it. Plus, you may need to move into a retirement home later in life and you’ll need to have the funds to do so.

2. Helping the kids too much

We all want to make sure our kids and grandkids are well looked after. There’s no denying that the cost of living is getting higher and the younger generation can sometimes struggle to make ends meet. However, while it’s admirable to help your family out, be realistic about the amount you can afford to give away. Have a conversation with your children about how much you can realistically give them and how much they’ll have to figure out for themselves. It's all about striking a balance between helping your children out and enjoying your retirement. 

3. Not knowing how much is going out

It’s easy to keep tabs on what is coming in; it’s much harder to monitor what is going out. While we can’t control investment results, we can control our spending, and at this stage, it’s imperative that a budget comes into play. There are plenty of apps around that can help monitor your spending and your bills so you can keep on top of everything. For example, TrackMySPEND allows you to put in all of your expenses so you can keep tabs on what is necessary and what you can cut down on. Pocketbook is also a great one that categorises your spending so you can see where the bulk of your money is going, for example, medical, travel or groceries. You can also link this app to your bank account so you don't have to manually put every payment in. 

4. Too much too soon

Remember, unless you decide to get a part-time job, retirement is for the rest of your life. Your superannuation and any income from investments need to last. While it’s exciting to suddenly not have any commitments, it’s easy to get overwhelmed and just spend up big. While it’s great that you can finally start up those hobbies and travel when you wish, overspending is dangerous and it’s especially important to monitor your expenses in the early years. Any money you use in your early years means those finances are no longer invested. And it’s not just the loss of money, it’s the loss of the potential returns that money may have earned.

5. Not talking to your partner

You need to be open and honest with your partner about your retirement savings and spending. It’s very common for one partner to be risk adverse and one not. It’s also common for one partner to be very attentive to spending and the other to be frivolous. Remember, this is ok. As long as you are honest with each other about what is happening. It’s also important to be realistic with each other. And if you can’t agree, consider talking to a third party about how to compromise. There are plenty of professionals who will help you by looking at your income and your situation and find what works best for you.