Top 6 Mistakes in Retirement Planning
Switching Your Lifestyle During Retirement?
One of the primary reasons why people seek advice from financial professionals is because they want to know when exactly they can retire if they can in the first place. For most individuals, the very idea of retirement can invoke anxiety. They feel overwhelmed and not completely prepared for this major transition.
One of the biggest issues with those facing retirement is striking the right balance between their current lives and the type of life they look forward to living. Lifestyle is indeed highly personal. So, the luxuries of someone can be a highly modest life for another person.
So, the major question that comes to play: can you manage to handle the rest of your life with lesser funds or will you rather focus on maintaining the kind of life you have right now? The answer to this relevant question will then lead you to the next relevant question in line. What should be your savings goals for retirement? Also, have you taken the time to work on this amount? Have you decided how much you’ll need for financing retirement?
But while retirement seems like a crucial phase of your life, most of us succumb to some common mistakes while planning for the entire thing. But guess what? You can easily avoid these mistakes by following the right steps. But even before we go there, let’s check out these mistakes in detail.
Retiring At A Certain Age
Do not just end up retiring because you’ve met specific age and the people around you expect that from your end. If you’re someone who still loves working and get personal satisfaction from your job, there is no point in going with the flow and retiring. This is not the right decision is psychological, social, and practical terms.
Even before you retire, check out the kind of work you can do. Look up voluntary jobs, social involvements, events in sporting clubs and everything else you deem fit. Are you comfortable spending your life doing this? How will you manage to fill the 24 long hours of your life?
If you aren’t yet prepared to get involved in either of the things, it is best to avoid retiring just because people expect you to do it. Instead, try cutting down a few hours from your regular work and try spending your time doing the listed activities.
Unless you have an alternative plan, there is no point in retiring because it’ll not do you any good.
When it comes to assessing the situation from a financial perspective, you should always have complete clarity about your budget post-retirement. One of the biggest questions you should be asking yourself is the amount of income you needed maintaining your current lifestyle. Also, think whether you are willing to downsize your lifestyle post-retirement. A large number of individuals have no clarity regarding this. Others have distorted views about their income requirements. If you are still willing to stick to your lavish lifestyle, getting retired might seem impossible. At this point, the entire process of planning might appear discouraging. Alternatively, if your goals are on the lower side, you would incline to get retired almost immediately.
The usual calculation is to assume that you’d need at least 80% of your current income post-retirement. That said, this method is highly generic, and it can also be inaccurate. Usually, people end up underestimating the amount they would need during retirement.
For a more accurate estimation on the subject, you can use our retirement planner to check where you stand. Although this process involves assumptions, it will still offer the required clarity for understanding how much you should be saving. It is important to note here that although your food and entertainment costs will go down, the cost of healthcare will exponentially increase.
Underestimating The Cost of Healthcare
When it comes to the financial perspective, healthcare is one of the most ignored areas. By simply eliminating this major potential cost, retirees end up getting financially worked up over the following years. Remember, elderly individuals, are the ones who need healthcare the most. Your costs will also go up if there’s an underlying healthcare issue you’re required to address.
Remember, if you initially depended on your company to handle the medical expenses, retirement would result in the elimination of that benefit. Since you aren’t covered anymore, you’ll be required to get your healthcare plan. Here, a life insurance plan can be a good idea. Additionally, you should also opt for proper private coverage.
If you already have private coverage for healthcare, you need to understand how your healthcare requirements are going to change with age. A simple hospital policy will not work at this point. Instead, you will need a plan that covers additional benefits.
Along with the mentioned factors, the amount you have decided for paying might also increase. This happens because you’ll now be visiting the hospital more often.
If you aren’t sure about how your needs from health insurance will change, you can always get in touch with the consultants at HICA. These professionals will offer you the right guidance. They will also help you pick the best cover for your post-retirement lifestyle.
For instance, elderly individuals tend to fall quite often. This results in fractures and a host of other injuries. Elderly individuals might also have issues pertaining to obesity, owing to their previous lifestyle.
For prudent planning, it is important to consider all these aspects while choosing a healthcare plan for the long term.
Not Getting a Plan For The Long Run
Individuals and families that have assisted aged patients are aware of the emotional toll it might have. Additionally, they also know how it might debilitate their savings. The time and money required for the process is massive to say the least.
In Australia, the system for caring the aged comes with plenty of options for meeting the varying requirements of every individual. Two common options here are: residential care and community care.
Residential care packages can be availed in supported accommodation. They are ideal for the people whose requirements cannot be met at their home. Here, there are two common types of packages in place:
Permanent care in residential facilities are tailored to the specific requirements of the individual. Although this care was initially offered at two levels, the policy is no longer in place. Respite care ensures temporary care in residential facilities. They support the need of older people while also catering to their desire of living in their homes according their liking. Unlike the former, this care can be classified into low or high care.
Community Based Care
With the Commonwealth Home Support program, you can avail entry level support solutions for elderly individuals. These services are especially useful for people who require constant monitoring to independently live in their houses. Home Care Packages offer complex and fully customized care at the comfort of your homes. It has four different levels of care packages and are effective in treating individuals with basic care, low care, intermediary care and high care needs.
It is important to have clarity about these options. Additionally, you also need to know how you are going to pay for these services.
Not Having Proper Savings
It goes without mention that the sooner you work on saving for your retirement, the higher will be your chance of meeting the retirement goal. That is because of compound interest.
Ideally, the amount you’ll need for retirement will entirely depend on the age of retirement and the kind of lifestyle you need. Usually, most retirees need higher income during the first few years of their retirement than the later ones. As these individuals get old, the initial lifestyle requirements change, and they start needing less.
You can check out our website to see the amount of money you’d need during retirement. It will simplify tracking progress and managing money will be easier. If you already have a solid income and are still worried about Australia superannuation, our tools might help give your savings a boost.
You can also ask your employer to deduct a higher amount from the pre-tax income. The funds can later go to your retirement savings. Remember, although this means a lower take-home salary, it is a great way to build your retirement fund. The best part: you will also end up saving a lot of tax.
If your income is on the lower side, you might also be eligible for a Government funded contribution fund. You can find more details about this from the Australia tax offices.
Your key here is to take your retirement savings seriously and save a decent chunk of money every month.
Using The Same Retirement Plan For Years
Every market is likely to witness rise and fall, and your income isn’t an exception. That is the reason why you should always revisit your retirement plan once in a few years for getting a full account of the situation. If you got your previous retirement plan at least five years back, you have probably witnessed lifestyle changes that aren’t relevant to the old plan.
You should also review the retirement income products so that it is easier to handle money during your retirement. At this point, it will also be easier to make the most of your government entitlement. In addition to the regular products, check if you have income protection insurance and life insurance. You should also check if you are eligible for the usual governmental benefits on board.
Most financial planners will come up with a retirement plan for you and change it every five or ten years. For best results, you should get your plans assessed once in three years. As you do this, it’ll be easier to make the necessary adjustments. The best part: you will be better control over your retirement.