Avoiding The 10 Worst Retirement Planning Mistakes

Why You Must Avoid Them.

As I continue to update my blog, I am finding lots of articles that still hold as true today as when I originally wrote them in 2010.

Avoiding The 10 Worst Retirement Planning Mistakes


Members of previous generations have reinvented every phase of life as they went through it. Your generation will not be different. Like previous generations, retirees will embark on new hobbies and volunteer. However, those who have not saved enough or continue to work will also start businesses and start a second career. As our lifespans continue to increase, retirees are likely to embrace a mix of work and leisure activities.

College towns offer an ideal mix of amenities and affordability.  Every year U.S. News provides a list of best places to retire.    Before we get too caught up in planning our relocation, let’s first make sure we can get there. 

The ten worst retirement planning mistakes


The responsibility lies with you to make your planning correct. Here are the ten biggest retirement planning mistakes – and why you need to avoid them.

For the past generations, retirement planning was, if anything, a kind of thinking time. It was simply about paying off the family home, stashing a couple of stocks, bonds, and some cash and relying on the old-age pension safety net. However, in the twenty-first century, that is not enough anymore. In fact, industry studies suggest that many couples plan to live on more money ($ 30,000 per year) than the retirement pension (about $ 19,000 annually) provides.

The consequence of this is that individuals if they want to live well in retirement, more than ever start saving as soon as possible, set their retirement goals, assess the myriad of investment opportunities and be aware of the associated risks. At the same time, with this greater complexity of investment, investors may become confused and make mistakes that may affect retirement provision. In this article, I will cover some of the most common investment mistakes, the directional signs to watch out for, and strategies to make profits out of mistakes. Let’s start by considering the most common mistake, “Failing to Plan.”


1. Do not plan for your financial future


“Do not Plan; Plan Failure” is so true when it comes to investment today. You see, the money will not appear in your bank account on the day you retire, and a financial plan is so important here. It is a bit of a roadmap that shows where you want to go (a comfortable retirement) and the best way to get there. The plan should include investment advice and information about the risk associated with your investments. A good plan will also address issues such as the insurance you are considering, your tax position, your cash flow (budget), and all retirement and estate planning issues.


2. have no budget


Expressed simply; Budgeting is the most effective tool to get your finances under control. A budget tells you where your money goes, where to save and where to save. I know there is no doubt that it is very difficult to cut spending when there is so little fat in the first place. However, no matter how much you earn, it is a matter of taking your money. This also means that you need to manage your cash flow, which can only be achieved through budgeting.

A budget also gives you a much better idea of ​​where your money goes. It is estimated that people spend between $ 50 and $ 300 each month for which they are not responsible. This money can and should be used to pay down debts such as a credit card or a mortgage, or be added to your retirement account.


3. Leave your money in the bank


Sure, the bank is a great place for your daily pocket money, but it is not good for your investment money. If you want to stay at the bank, do not leave any money in it, buy shares in it. Equities (and real estate) pose a greater risk than cash and can generate small or even negative returns in the first few days. On the other hand, equities and real estate generate capital growth in the longer term, and returns can be taxed at a favorable rate.


4. Panic at the first sign of trouble


The path to successful investing is fraught with many obstacles, as equity investors confirm! The successful investor tolerates smaller setbacks, does not remember panic and sticks to the original investment strategy. When a high-quality investment (such as stocks or real estate) suffers a decline, it is the worst time to sell. Selling only costs money. However, if you last longer and even buy more during a downturn, you will be better off when the investment recovers.


5. Track past achievements


A few years ago, Economist Magazine produced some interesting research that illustrates the folly of persecution of past achievements. The study showed how an investor started with $ 1 on January 1, 1900, and then hypothetically predicted the best investment market every year through 2000. The result would be a huge $ 9.6 trillion (pre-tax) profit. However, if an investor had invested in the high-flyer of the previous year on Jan. 1 (a mistake made by many investors), the initial share of $ 1 rose to just $ 783 before taxes. The lesson here is, do not take too much notice of past performance and focus more on what might affect an investment in the future.


There are other mistakes that investors make, such as the charm of a quick pension, the media hype about certain investments, and the wrong calculation of the level of risk that makes you feel good. Here’s the maxim: the higher the risk, the higher the return. Many people take more risk than they can afford to make money quickly. However, when the investment falls short, they are financially in a difficult environment.


After all, it is important to be aware of the frequent investment mistakes, but even if you misunderstand it, it is not the end of the world. Learn and keep going. Alternatively, if you are uncertain about an investment, it may be wise to discuss it with a qualified financial planner. At the same time, using a financial advisor is not a sign that Holus Bolus can simply transfer responsibility for your money.


6. Timing the market


You do not have to be Albert Einstein to see why some people will try to get their market timing right. Anyone who can continuously pull up stock moves will end up getting very rich, just as an advertiser who can consistently pick winners will do very well. However, as winning horses is consistent, it is easier said than done to find the right time for the market.


An excellent example of the folly of testing the market was shown by a study of the US stock market between 1980 and 1993. The study found that if an investor had left his money on the market during that time (1980 to 1993) on average 15 percent return per year. However, if they missed only ten of the best trading days of the period, their yield fell to 11.9 percent. If you miss the 40 biggest days, this has reduced your return to 5.5 percent.


There are no shortcuts except the lottery. Even those who were thinking of giving up their jobs and jumping into day trading took notice. Instead of just trying to beat the market, I would advise investors to buy good quality stocks and stay with them over the long term. In the long run, I mean for at least five to seven years – and you will be amazed how fast your money starts to grow.


7. Do not diversify


If all your eggs are invested in a single basket, this could be too risky, especially if the basket tips over (e.g., stock market October 1987, real estate market in the early 1990s and technology stocks April 2000). Distributing your money across asset classes such as cash, fixed income, equities and real estate will help you acquire more consistent returns over time.


  1. Do not do your research


During the tech bubble of the late 1990s, it was not unusual for investors to take stock market advice from family, friends, work colleagues, and even well-meaning taxi drivers. What aggravated this common mistake was that many responded to this advice without even doing any research. Always research an investment (purchase real estate from the plan, managed investment or new stock list) and find out who is behind it. Conducting a research period also gives you time to evaluate an investment that initially looks good, but may not be appropriate for closer inspection.


9. Investing in crazy schemes


When it comes to investment, be wary of regulations and pop up companies. Tea trees, films, olive oil, and ostriches. You name it; I have seen it – schemes in every color, shape, and size that are usually bought in a desperate panic from people worried about not having enough to get through retirement. My advice is pretty simple. If you do not understand the type of investment, do not do it. If you cannot afford to lose the money, don’t invest the money.   If it sounds too good to be true, it is!  When I look at my clients, those who simply focus on minimizing their taxes in the usual way, paying what they owe, and focusing on a sound investment strategy, will be miles ahead.


10. Starting too late


To start young and save small amounts on a regular basis is the surest way to financial independence. However, if you did not, it is never too late to plan for retirement. I have clients of all ages – and much older than 55 when they approach me. The first step is to pay off the mortgage if you have not already done so. This can be achieved by increasing the repayments, if possible. Once the mortgage is paid off, it is time to consider other investment options.

One possibility here is to consider whether you want to improve your super by “salary sacrifice.” This is a simple strategy where you can adjust your pay so that your employer pays you part of your salary (previously paid in dollars after taxes) – dollar dollars into your super fund. Investing more money in a Super Fund will give you access to a range of managed investment options – balanced, capital-stable, and growth-fund options. This will soon tell you that you are better off retiring.