Mastering retirement planning: How to sidestep common pitfalls to ensure financial freedom

Retirement is a time to enjoy the fruits of your labour, live life to the fullest while relishing the freedom of your golden years.

However, the journey into retirement can present its fair share of challenges as you try to strike a balance between accumulating sufficient funds to sustain a comfortable retirement while enjoying your newfound free time.

Retirement can also be a time when many individuals make costly financial mistakes that can negatively impact their financial security. Mistakes are bound to happen somewhere along the path, possibly forcing you to readjust what had originally seemed like a well-thought-out plan.

However, with careful planning and knowledge of common pitfalls, you can avoid such mistakes and ensure that your hard-earned savings last throughout your golden years.

With the aim of examining the most common financial mistakes that retirees make and how best to avoid them, Starts at 60 sought advice from the experts to ensure those transitioning into retirement can enjoy their retirement, free of money concerns or unexpected expenses.

What are some of biggest retirement planning mistakes?

Retirement is a monumental stage in one’s life, it’s a significant transition moving from a lifetime of hard work and earning a steady income to relying on savings and investments to meet financial needs.

Given the momentous nature of retirement, common financial mistakes in retirement can have an equally significant impact, leading to long-term financial consequences

Some of the “major financial mistakes that retirees should avoid”, according to Sydney-based Wealth Coach Andrew Woodward from The Investor’s Way, include “not knowing your numbers”.

“Relying on memory and ‘on-the-run’ money management is not going to cut it in retirement,” Woodward warns.

“While you were working and had the capacity to overcome mistakes, retirement is a different proposition and requires that you know your numbers. Understanding what is coming in and going out is crucial to ensuring you manage your money for now and for the period of years you have remaining.”

Overspending is another financial blunder that Woodward cautions against and cites as “one of the biggest reasons retirees end up in stress about money”.

“Overspending is a habit that most have carried into retirement from earlier times and has disastrous consequences,” Woodward says.

“Having a money management plan is crucial to set yourself up in an environment that prevents overspending, especially on those cute grandkids.”

Woodward stresses that “it is important to know what you are entitled to in the form of Government assistance or any other entitlements for retirees”.

“There are many little benefits that are available, so be sure to know what they are and take advantage of them, such as transport and medication discounts,” he says.

While knowing what you’re entitled to in retirement is important, having a thorough understanding of superannuation is another area to remain on top of to avoid costly mistakes.

“After spending years to build up your superannuation entitlements it is important that you know the best ways to draw down your superannuation without risking unnecessary taxes or waste,” Woodward explains.

“Since this is going to be one of your most substantial income sources it is worth knowing how to plan to get the most out of it for the longest possible time.”

Lastly, Woodward stresses the need to manage your investments and not “switch off” after “having built up your investment portfolio to support you in retirement”.

“While you may not be adding to your investments at the rate you once were, it is still important to manage them as closely, knowing when to sell the duds and knowing how to derive the most income from them,” he says.

“Now that you have more time, this is a great way to boost your income and wealth by spending more time knowing what is going on with your investments.”

Founder and CEO of Stockspot, Chris Brycki sees retirees “not adjusting their spending to match their decreased income” as the biggest mistake made in retirement,

“Many retirees rely on a fixed income from sources such as age pensions, super, or investments, which may not keep pace with inflation,” Brycki highlights.

“If they continue to spend money at the same rate as when they were working, they may find themselves running out of money later in retirement.

“Some retirees also overlook the potential impact of long-term care costs. While they may have planned for basic living expenses, they may not have accounted for the potential cost of in-home care, assisted living, or nursing care, which can be significant. This expense often falls on loved ones instead.”

These mistakes can have a lasting impact on the financial stability of retirees, making it critical to plan and prepare adequately for retirement.

What are some ways retirees can avoid such mistakes?

Making financial mistakes during retirement can have considerable negative consequences, such as burning through your savings, being unable to pay for essential expenses, or being forced to return to the workforce to make ends meet.

Therefore, it is crucial to avoid financial mistakes in retirement. Achieving this requires careful planning and making informed decisions about spending, investment, and saving strategies.

It is also important to stay up-to-date on changes in the financial arena and remain mindful of scams and fraud. Taking a proactive approach to avoiding financial mistakes in retirement can go a long way to ensuring a secure and comfortable future.

Woodward advises that first and foremost, retirees should be planning ahead before retiring.

“Put the time in early to know what you will have to work with in retirement before you get there. This will enable you to make any adjustments to your current lifestyle in preparation for when you retire,” Woodward says.

Having a money plan in place is another measure retirees can implement to avoid costly mistakes and to “create an environment for success that supports you and your lifestyle”.

“A money plan is automated and puts money where it needs to be when it needs to be there,” Woodward says.

“The main difference between a money plan and a budget is in the automation. A budget is a static model that does nothing to support you when you need it most.”

Seeking support and guidance from those in the know is another step retirees can take to ensure they are making sound financial decisions.

“Have someone you can turn to that can provide you with the information required to understand your circumstances and guide you on the entitlements, use of superannuation and management of your investments,” Woodward says.

Brycki shares Woodward’s sentiments regarding “seeking expert financial advice” but also highlights the need for “setting and regularly reviewing a budget”.

What actions can retirees take to correct a financial mistake made during retirement?

For retirees who have found that they have made a dire financial error in their golden years, the first reaction will likely be panic and worry, however, there are several steps that can be taken to correct the matter.

It is important for retirees to take proactive steps to address financial mistakes as soon as they become aware of them before the mistake leads to long-term detrimental financial consequences.

Woodward agrees with addressing the matter as soon as possible, explaining that “if you find yourself in the scenario where you have made a mistake, whether it be overspending or not knowing your entitlements, the best thing you can do is to act quickly to remedy the scenario.”

“The thing with money and wealth that I have found over the years is that most people prefer, mainly due to fear or a lack of knowledge, to procrastinate on the solution,” he says.

“In retirement, you don’t have that luxury (you don’t really have it when you’re not retired either but that is another story). Quick, focused and informed action is required to get you back on track.”

When correcting financial mistakes, Brycki says that it “really depends on what the mistake is and the costs of reversing it”.

“For instance, if a retiree realises they are in a dud super fund they can easily switch to a better-performing fund,” Brycki said.

“However they may incur some switching costs and capital gains which will need to be weighed up against the benefits of moving.

“It’s never too late to start your retirement planning. The sooner you start, the better.”

On a closing note, Woodward says that “it is important to acknowledge that moving into retirement presents a whole new dynamic for you and your money, one that we are not taught how to manage, and therefore, getting help and having a plan is simple but effective advice.”

“After having spent years working hard and contributing to society, nobody wants to become a burden on family or society, or dependent on others to survive, so some simple proactive steps will provide you with peace of mind, security and most importantly knowledge to enter the final phase of life with more certainty,” he says.

This article was originally published on April 1, 2023, and has been updated on September 4, 2023.