5 Common Retirement Planning Mistakes
Retirement is a milestone we all look forward to in our lifetime. Most of us see it as a time of tranquility and luxury living with time to focus on family, friends, and travel. The British Columbia Seniors Living Association (BCSLA) advocates on behalf of and celebrates older adults, and we want everyone to achieve their ideal retirement. In order to do this, we encourage retirees to avoid five of the most common retirement planning mistakes.
Neglecting Work/Life Balance
Loving your career is an achievement that most strive to reach. While it is something to be proud of, work/life balance is crucial for your longevity and health. This is especially important approaching retirement, as you plan to have more free time and a less demanding schedule.
If you retire cold turkey, you could risk feeling as though you’ve lost your “purpose,” and that is no way to start enjoying your well-deserved retirement years. Start planning now by easing into retirement by cutting down projects or hours at work, discovering sports or hobbies that truly bring you fulfillment, volunteering in your community, or planning a trip for a week into your retirement.
Once you are fully retired, it won’t feel like as much of a shock as you may have a project on the side, a beautiful cruise through Europe planned, and a golf tournament to attend when you get back. Keep yourself busy and determine what retirement and tranquility mean to you!
Only Counting on Your Home
Over the past five years, finance professionals have seen more and more retirees disappointed when they find out their home equity will only cover up to half of their retirement funds until the age of 80. As the housing markets fluctuate, land taxes increase, the economy dips, or interest rates skyrocket, relying on your home as your sole retirement income is a risky decision (and a common retirement planning mistake!).
In addition, don’t forget the hidden costs of what comes after selling your home or taking out your home equity line of credit. Downsizing costs are always more than you expect and living in your same neighbourhood has likely become more expensive, leaving you to settle for a less than favourable neighbourhood in British Columbia or small condo with fewer amenities and higher condo fees. This may sound discouraging, but with the right financial and additional investments, your home can be a great asset to supplement your retirement plan.
Not Hiring a Financial Advisor
It’s heard all too often, “What can a financial advisor do for me that I cannot do myself?” And while there are many online resources available that can provide tips, advice, or guidance on a specific subject, this is an area you should trust with a professional. Research shows just how valuable an experienced financial advisor can be in growing your savings and helping you live a higher quality of life.
Think about how much financial stress is on British Columbians with increasing taxes and population growth alone; never mind the complexities of investment fees, estate planning, or RRIF withdrawal timing. Live your retirement with peace and tranquility, avoid a common retirement planning mistake and leave these concepts to a professional who will work day and night to ensure you and your kin have financial security after retirement.
Underestimating Payments & Hidden Savings
Luckily, if you have invested in hiring a financial advisor, they will be fully prepared for potential payments and hidden savings. In case you have opted out of involving a professional, we have outlined some extra ways to save and some surprise payments you can avoid.
Retirement is ideally a stress-free time to spend with loved ones and do the things you have always wanted to do. Unfortunately, sometimes your health or the health of the economy may have something else planned. Be prepared for unforeseen inflation rates, at-home medical support, or aging in place renovations that could potentially arise.
Do your research and make a list of worst-case scenarios to ensure your contingency plan covers every possibility. Using a health savings account, begin saving for emergencies to safeguard your retirement savings from any surprises down the road.
Potential Extra Savings
You would be shocked at how many earnings we are entitled to and do not even realize. Research, education, and an experienced retirement financial advisor will equip you with valuable insight such as potential grants or interest savings that will bring value to your retirement fund.
Just consider every time you invest in an employer’s registered Retirement Savings Plan (RRSP) and leave before the minimum employment timeline. By doing that, you end up wasting a significant investment towards your retirement. Career growth is important, but keep in mind the financial pros and cons of moving positions based on your retirement savings goals.
It is important to remember that in order to reduce stress, BCSLA recommends always talking to a financial advisor to see if it is right for you, even if you don’t use them. If you aren’t a financial expert yourself, it is always wise to seek the advice of someone who is.
Paying Off Debt Before Saving
A difficult concept to grasp is saving and paying off debt at the same time. All financial advice is driven on what money you currently have in your pocket, but when it comes to retirement savings and debt over time, the best advice is to find a way to tackle both.
Paying off debt before saving is a common retirement planning mistake because the earlier you start to save for retirement, the better, as interest rates accumulate in your savings, but the sooner you rid of debt, the more money you save. Feels like a catch 22, doesn’t it? Luckily, we have outlined some great ways you can do both.
Speak to An Advisor
We cannot say it enough, speaking to a financial advisor is always your best path forward for smart financial decisions.
Find Passive Income
Perhaps your hobbies can bring in income, or you can rent out your basement. Get creative and find alternative ways to make extra income.
Take Advantage of Interest Rates
As you save, it is crucial to get the most bang for your buck. Ask your financial advisor to investigate the best interest rates for your retirement savings account to grow your money without even trying.
Start Small with a Budget
Build out a realistic budget and focus on paying off the small things first. The confidence you will get from paying off a financed product will give you the momentum to take on your credit card, then your car, then your home.
Retirement requires planning to bring your peaceful vision to life. Don’t count on your RRSP or home to carry you through the best years of your life. BCSLA encourages you to be proactive so you can get the most out of your retirement.