Planning your retirement? Make sure you avoid these mistakes
Retirement planning can be complicated, as anyone retired or approaching the end of their working life is aware of the hassle.
The main issue with using savings to create an income stream for an indefinite period of time which automatically mean changing your plans mid-retirement to the detriment of lifestyle and happiness. Retirement should be the easy part of life, hence why we save and invest so much to fund it, and there are simple ways to make sure your decisions are the right ones from the start.
Since 2015, planning has become more complex as pension freedoms gave people the choice of what to do with their retirement savings. Now, anyone who is over 55 with defined contribution (DC) savings, either from their employer or through a self-invested personal pension (Sipp), can cash in the pot entirely. While this choice is positive it also increased the number of traps those planning retirement can fall into.
Increased choice brings increased risks, including the possibility of running out of money later in retirement. To stay on top of your retirement, here are a few common mistakes that you might want to look at.
Having too much in cash
Having some cash is useful for protecting yourself if in any circumstance the market falls. Having too much increases the risk of inflation eroding the purchasing power of your assets. It also means your assets may not be able to generate enough growth to meet future income needs.
Irregular fund allocation
Sticking to only a few asset classes can turn out to be a bad decision. For proper and customised advice, you can consult a certified expert before deciding on the fund.
The extent of risk is solely depended upon the life cycle an individual is in. For an instance, a fresh graduate can bear slightly more risk as compared to an individual with family and kids due to fewer responsibilities. You can include high-risk high-return assets in your portfolio at the beginning of your career but you definitely should not invest in high-risk opportunities if you are about to retire soon because during this phase most of the people lose their hard-earned money in the last leg of their employment by investing in risky options.
Not reviewing periodically
A periodic performance review of your respective financial plan is important. By reviewing you can reorganise the financial plan according to the latest requirements.