5 financial traps that keep people working longer

Most people have a rough idea of when they’d like to retire. Far fewer have a plan to get there so find themselves working longer than expected to fund their retirement.

Here are some of most common financial traps people fall into as they near retirement age and tips for how to avoid them.

TRAP 1: Lifestyle creep

As a person’s career progresses, their income tends to rise, as does their standard of living. The problem is that the lifestyle people become accustomed to while working can be very difficult to sustain once they stop. Say you’re earning $200,000 a year ($140,000 after tax), generating that same income in retirement requires a substantial asset base. Without one, lifestyle creep becomes a genuine trap that can keep people at their desks long after they’d planned to leave.

The solution looks different for everyone. Some people seek advice early enough to course correct. Others need to have harder conversations. I’ve sat down with clients in their 60s who want to retire in two years, but when we look at the numbers, they’re simply not there yet. Some are motivated to turn things around quickly, while others decide they’re happy to dial back their lifestyle rather than keep working at the same pace. Others find a middle path in semi-retirement, earning enough to supplement their costs until the Age Pension kicks in and helps bridge the gap. There’s no single right answer, but without qualified financial advice, you’re running blind.

TRAP 2: Asset-rich, cash-poor

Having a significant asset base doesn’t automatically mean you’re ready to retire. Liquidity matters enormously and this is where a lot of people get caught out.
You might have $3-4 million in assets but if one of those is a family beach house that isn’t generating any income, it can’t be used to fund your retirement.

Being asset-rich but cash-poor is a particularly common issue for farmers who want to hand the property on to their children but have little built up outside the farm itself. The children often can’t afford to buy them out and there’s a real disconnect that can leave people with no choice but to keep working. Building income-producing assets is worth considering well before retirement.

TRAP 3: Deferring investing

One of the most common traps I see is people putting off investing until their mortgage is paid off. In principle, that sounds reasonable. In practice, life keeps happening – renovations, upgrades, unexpected costs – and investing gets pushed further down the list. Starting earlier, even in a small way, makes an enormous difference over time. Waiting for the perfect moment usually means waiting too long.

TRAP 4: Not understanding your superannuation

It still surprises me how many people have very little idea how their superannuation is invested, or even which fund holds it. It’s extremely common. There’s also a significant portion of Australians who aren’t making voluntary contributions on top of the compulsory employer amount. Superannuation is one of the most tax-effective vehicles available for building retirement wealth, but only if you understand and engage with it. It doesn’t have to be complicated or time-consuming; even small, regular additional contributions made consistently over time can have a meaningful impact on your retirement.

TRAP 5: Lack of a plan

The common thread running through all of these traps is the same: a lack of a plan. People assume they’re on track without ever actually checking. The good news is that there is a wealth of reputable resources available, from government tools to industry super fund publications to qualified financial advice. The starting point doesn’t have to be a big one. It just has to be a start.

Mark Grasso is a Partner, Financial Adviser and the Operations Manager at Oxlade Financial. Mark is a qualified Certified Financial Planner® and holds a Master of Financial Planning and Bachelor of Business (Financial Management).

Any information in this article is general in nature and does not consider any of your personal objectives, financial situation and needs. It is as intended, to be of a general nature only and NOT a recommendation to you. You should consider whether the information is appropriate for your needs and, where appropriate, seek personal advice from a registered financial adviser.