In the most recent Retirement Roadmap article, we explored ways you might manage your own retirement income needs, concluding that it’s often wise to access the appropriate financial advice. Which provides a handy segue to this week’s topic, the things that can and do go wrong with retirement planning– and how to avoid these common mistakes. 

The overall complexity of Australia’s retirement income system means that there is a seemingly endless list of errors that unsuspecting retirees and pre-retirees can make.

It can be scary out there! But it’s also easy to summarise and learn from the types of rookie errors that cost people money. These main money mistakes generally occur due to five very human failings which are:

• Lack of awareness – not because you lack intelligence, but because it’s really challenging to be across all the detail on every aspect of retirement income all the time
• Lack of understanding of asset classes and their returns
• Procrastination – an age-old human trait
• Being too self-focused
• Overlooking the most important thing of all…

It’s common for pre-retirement people to focus on work and be disengaged from their super Photo: Fizkes | Dreamstime.com

1. Missing opportunities to maximise your super 

This often happens because of a lack of awareness of rules and opportunities. It usually appears in the early days of receiving super and then is exacerbated in the pre-retirement stage.

A tendency to be initially disengaged with super is easy to understand. You’re young, you work hard, your employer is legally required to pay your super into your chosen account, so it’s all taken care of, right?

Well not quite. Hands-off super grows at a much slower rate than savings that are more actively managed. So don’t make the mistake of thinking that there’s nothing to be done. At a bare minimum, make sure that you:

• consolidate your super accounts,
• check your annual statements,
• talk to an adviser at your fund about the investment settings you have chosen (they could be too conservative), and
• review your insurance settings.

This link takes you to some great explainers for those who need to know more about how super grows. 

The second, later, stage of risk is for those just pre-retirement, who can miss opportunities to maximise their savings while still working. Our 40s, 50s and early 60s are busy years when we often prioritise family needs, paying down debt and career development.

So it’s easy to overlook the many ways of maximising your super savings before you leave the workforce. As well as extra salary sacrifice contributions , you can use other options including spouse and bring forward contributions to ensure you boost your savings as much as possible.  

Age 60 is Preservation Age, it’s important to understand the risks of moving money out of your super. Photo: Yuri Arcurs | Dreamstime.com

2. Failing to properly understand different asset classes

Your super is invested in a mix of asset classes – typically local shares, international shares, property funds and some cash or bonds. You have either selected a mix of investments by default – or you have chosen an investment setting that looked ok at the time.

It’s important to know what your settings are, to review them at least annually and to understand if a different setting might have resulted in higher returns for very little extra risk.

Moving money out of super without checking possible consequences is also risky. At age 60 you have reached Preservation Age – the date when you can access your super without penalty. But just because you can do something doesn’t mean that you should! Given that most Australian men and women will live into their 80s and beyond, retiring at 60 is not for everyone.

Moving money out of super is a major financial decision, not to be taken lightly. Some people access their super and put it into cash, which over recent years has resulted in returns less than half those had the same money been left in their super funds. Moving money from a super environment where, if you have started an Account-Based Pension, it is tax-free, to a non-super environment often means you erode your returns.

If you are unsure when and how to access super, it’s important to seek a second opinion. Start with the advisers at your fund who can share projections of how your money might last and the most tax-effective ways to use it after Preservation Age.

3. Failing to apply for Age Pension as soon as possible

Many of us fall victim to the ‘I’m getting around to it’ syndrome. Which is fine when it comes to planting a rose or tidying the cupboards. This attitude, however, can have very negative ramifications when it comes to Age Pension entitlement.

All Australian residents aged 67 can apply for an Age Pension – and you can do this 13 weeks before your birthday to ensure you don’t miss any benefits. Many people assume they won’t qualify. Yet nearly seven in ten Australian retirees benefit from this fortnightly retirement ‘salary’.

So assume nothing, get your paperwork in order (your fund can often help with this) and make sure you don’t forgo thousands of dollars because you simply didn’t apply on time.

4. Forgetting to plan as a couple

Yes, your super is an individual saving. But not fully understanding rules for couples (with both super and Age Pension) can result in missed opportunities and income.

As you approach retirement it’s helpful to understand that Centrelink does not view couples’ homes and savings as separate. Instead, your joint super will (at least partly) determine your Age Pension eligibility. However a little-known fact is that if a younger spouse or partner has super still in an accumulation account, then this money is exempt from the Age Pension Means Test. This means that an older partner is often entitled to higher pension payments than they anticipated. Again, it makes sense to discuss all the rules for couples before accessing your super and applying for an Age Pension.

Health and goals are a big part of super as these will impact how much super you need. Photo: Wanida Prapan, Dreamstime.com

5. Overlooking the most important thing of all

You may think this will be another money strategy, but it’s not. It’s about your health, which includes your wellbeing, sense of connection and purpose. Many pre-retirees start with the question ‘How long will my savings last?’. But the answer is, only as long as you do too.

Start, instead, by asking yourself which dreams you have yet to fulfill. Where you want to live and with whom. What will underpin a well-balanced life. And consider how you can adjust your current routine to start to incorporate these elements of ‘a good life’. Once your priorities around your health, contentment, family and worthwhile activities are sorted, then you’ll have a much clearer idea of your financial goals and the priorities required to achieve them.

Useful links

Ways to increase your super contributions

https://www.industrysuper.com/calculators-and-tools/calculators/find-extra-money-for-super 

See how your super might grow

https://www.industrysuper.com/compare/compare-the-pair

Five worst retirement mistakes is part seven of the eight-part Road to Retirement series. Next time we explain a countdown to retirement and provide a 12-month checklist.

Want to learn more?

These two handy calculators on the Industry SuperFunds website will allow you to apply these thoughts to your own savings:

When can you access your super? 

Your retirement needs calculator 

Stick with your Industry SuperFund in retirement and your money could go further. Visit compareyourretirement.com today.

This content is produced by The New Daily in partnership with Industry Super Australia.

This information provided in this article is of a general nature only and does not constitute financial or other advice. It is important to consider personal objectives, financial situations or particular needs when making financial decisions.