Making mistakes isn’t necessarily a bad thing. If you learn from those mistakes, you’ll likely look back on them as being well worth the pain. On the other hand, if you can learn from the mistakes of others, that might be an even better thing – especially when it comes to matters such as finance and superannuation. With that in mind, YourLifeChoices asked financial adviser, speaker and author Helen Baker an important question. What are some of the biggest faux pas made by self-funded retirees?
The mistake of not understanding the basics
A good first step is to understand the core terminology of your subject. You might say to yourself, “My plan is to self-fund my retirement.” But what does that mean? Broadly speaking, a self-funded retiree is someone who can generate enough income through their investments and superannuation to fund their retirement needs without supplementation through social security. In Australia, that usually means being able to achieve that goal without any Centrelink Age Pension payments.
The ‘lack of preparation’ mistake
It seems obvious, but preparing before you take up any task gives you a greater chance of succeeding. This applies to almost everything, be it giving a presentation or playing sport on a Saturday. I’m someone who is well aware of that fact, yet often ignore it!
Unlike a presentation or weekend cricket match, your retirement will (hopefully) last a lot longer than a day or two. You might get through that presentation without preparation, but a ‘fly by the seat of your pants’ approach to retirement is more likely to be a big mistake.
Importantly, says Helen Baker, preparation is key to coping with the unexpected events that may come in retirement. “Take last week’s stock market crash, for example,” said Ms Baker. “Good preparation helps to provide cushions for such situations.”
I think ‘cushions’ is an excellent word to describe such scenarios. You may not be able to guarantee against ever having a fall, but setting up strategically placed cushions will help you survive it.
My own experience is that preparation also makes a huge difference to my anxiety levels. If you plan for a number of possible scenarios, they’re unlikely to be nagging away at the back of your mind. Lower anxiety levels are associated with better health outcomes, and good health can only improve your retirement enjoyment.
Not asking yourself what self-funded retirement looks like
Planning for the unexpected is great, but many self-funded retirees fail to plan for the expected, says Ms Baker. What does that entail? “It means thinking about what an ideal retirement looks like for you,” she said. “Would you like to travel extensively? Is a house on the coast on your wish list? Do you have a hobby you’d like to become more serious about?”
Such planning does not mean mapping out every day of every year of your retirement. It simply means identifying some of things you’d like to achieve and charting a course towards achieving those things.
The mistake of not seeking professional advice
There’s nothing wrong with doing a bit of your own research into self-funded retirement strategies. But that’s unlikely to provide you with the intricate knowledge required to navigate happily and safely through retirement.
There’s an old saying that rings true here: ‘A little knowledge is a dangerous thing.’ Helen Baker has a good one of her own: “We don’t know what we don’t know.” Financial advisers such as Ms Baker know the things you’re unlikely to know having ‘done your own research’.
Registered financial advisers in Australia have done years of professional development and study to maximise your chances of success. “I have seen many people given what I consider less than optimal advice from someone not an expert in this field,” Ms Baker said.
Not taking the ‘pizza’ approach to self-funded retirement
Events such as last week’s Wall Street crash can have a disastrous effect on a superannuation accounts heavily invested in the stock market. But diversification can help mitigate such unexpected occurrences, providing the ‘cushions’ Ms Baker mentioned.
“Consider your portfolio as a pizza, made up of a number of slices,” she said. Ideally, each slice should be a different flavour. “Your slices could be bonds, cash, gold, Australian stock or international stock.”
And the slices may not be of equal size. A financial adviser will help you select the size and flavour of each slice.
When it comes to self-funded retirement, there’s a fair bit involved in the journey. Getting a registered financial adviser such as Helen Baker on board will give you a good chance of successful navigation. And they’ll help you avoid some of the biggest faux pas made by self-funded retirees.
Helen Baker is a qualified, practising and licensed Financial Adviser and founder of On Your Own Two Feet, an Australia-wide service dedicated to empowering women gain and retain their financial freedom.
Do you think you’ve made some mistakes on your superannuation journey? What would you have done differently? Let us know via the comments section below.
Also read: How inflation can dent retirement savings
Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.
