Top 10 money mistakes

Retirement danger zones revealed

International investment bank, Natixis, last week revealed the results from its survey on the 10 retirement planning mistakes.

These mistakes were in the Global Retirement Index , first published by Natixis in 2012 as the world emerged from the Global Financial Crisis. It also coincided with the first wave of baby boomers entering retirement. Ten years down the track, this first wave of retirees has now well and truly ‘stress tested’ retirement systems around the world.

In 2022 conditions are more volatile than ever with heightened global conflict, a two+ year pandemic, unpredictable stock markets and racing inflation.

‘2022 was one of the worst years to retire in recent memory,’ concludes the report authors. ‘It’s hard to preserve retirement savings, even harder to attain a secure retirement.’

‘But’, the authors add, ‘there’s still time to manage your money, as you are most likely to have two or three decades ahead of you.’

What are retirees doing wrong

The top ten most common mistakes reported by retirees around the world were:

  1. Underestimating the impact of inflation (49%)
  2. Underestimating how long you will live (46%)
  3. Overestimating investment income (42%)
  4. Being too conservative in investments (41%)
  5. Setting unrealistic return expectations (40%)
  6. Forgetting to factor in healthcare costs (39%)
  7. Failing to understand income sources (35%)
  8. Relying too much on public benefits (33%)
  9. Underestimating real estate costs (23%)
  10. Being too aggressive in investments (21%).

Apart from these pitfalls, there was also some good news in the Natixis report. Australia now ranks among the top five countries in which  to retire securely, up from seventh in 2021. We also scored fourth for finances in retirement and ninth for health services.

Are these retirement mistakes avoidable?

In most cases, yes. The view of the Retirement Essentials team is that each of the above mistakes is avoidable, or at the very least manageable. It really comes down to a handful of capabilities:

  • Having a clear-eyed view of your own financial situation
  • Knowing, or accessing someone who knows, the rules that matter to you
  • Reviewing and resetting retirement income goals and drawdowns and
  • Asking for help if you are unsure.

For instance, Mistake One – Underestimating the impact of inflation.  That is very topical right now as inflation keeps increasing.   Those receiving the Age Pension do have some protection built in as the Age Pension increases with inflation.  Others may find their mix of investments is leading to them falling further and further behind.  Cash in particular tends to earn far less that the rate of inflation.  Talking to one of our Advisers can help you better understand this.

Similarly, Mistake Seven – Failing to understand income sources – is entirely fixable. Retirement income streams such as Account Based Pensions, Annuities and Age Pension entitlements all have rules and requirements which need to be understood. There is a plethora of information which explains all this detail for all sources. Retirement Essentials does this every week with simple ‘explainers’ of all facets of retirement income. And for those rules that still seem complex, consulting a professional who can explain how they relate to your specific situation is the next step.

The same tactics apply to each of the other eight ‘mistakes’. Put simply, you don’t have to make them. No one can predict future inflation with certainty… just ask Reserve Bank Governor Philip Lowe. But you can build an expectation of inflation into your planning, including a ‘worst case scenario’ response. Having unrealistic return expectations is also easily combatted by knowing current rates of return and doing your sums on what is likely as opposed to what you would like makes a lot of sense.

The annual Natixis survey is a timely reminder that there many retirement income danger zones. But keeping ourselves informed and aware is more than half the battle to avoid mistakes. Taking time out to review your portfolio and if necessary reset your expectations of forecast income and expenditure is a critical task for each retiree.

If it feels all too hard, that doesn’t mean you shouldn’t do it, it may mean you need some support to get underway.

Retirement Essentials offers one-on-one general financial advice consultations to help you review your current retirement income settings, fill any gaps in your understanding and help you check out future income scenarios.

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Natixis surveyed  2,700 respondents across 16 countries for its 2022 Global Retirement Index.