Five financial mistakes to avoid in retirement

Nov 05, 2022
Source: Getty

While retirement savings are an irreplaceable asset and meant to last for life, the fact older Australians have more money and accumulated wealth than ever before, simply makes them more vulnerable to making financial mistakes.

Every day it seems another heart-breaking story appears in the media about a retiree being taken in by a bogus investment scheme or scam that ends up costing them hundreds of thousands of dollars. These five simple warnings though should help you avoid most of them.

1. Get rich quick schemes

There’s an old saying that if it sounds too good to be true then it probably isn’t true. Never has it been more important to heed this warning than today, when we live in a world of digital scams and photoshopping.

While the ever-increasing cost of living is prompting those on fixed incomes to look for clever ways to generate more income, the simple answer is don’t. There is no easy way of generating more income in this low-interest, low-return environment.

There are though always clever people coming up with new ideas as to what you should be doing with your money, but the most important question is to ask them about the risk associated with that investment.

So, for example, many high-returning investments are touted as being backed by secure property investments but when you look more closely, you will find you are providing the riskiest part of the finance package to property developers.

This is called mezzanine finance. It’s the money that fills the gap between what’s required to finance a finished property development and the amount a bank will extend with a mortgage over the development. This type of finance is typically unsecured and most at risk if something goes wrong.

2. Giving money to family members

Inheritance impatience is rife in Australia. The ‘Bank of Mum and Dad’ is coming under enormous pressure to help children by contributing funds to help them build a deposit and so secure their first home.

If you are tempted to give money to a family member, my simple advice is don’t. It will simply open the door to your family expecting you to give them even more money down the track and it usually all ends in tears.

Never pretend it’s a loan unless you’re prepared to have a loan document drafted by a solicitor and are willing to pay stamp duty on it. You might call it a loan and your family might call it a loan but, in your head, make sure you see it as a gift and don’t give it unless you can afford to live without it permanently.

3. Sexually transmitted debt

An increasing number of older Australians are finding themselves (either as the result of divorce or sickness) alone in retirement and with this comes the temptation to find a new partner.

While finding love later in life can be a very special experience, make sure you keep your eyes wide open, and your bank accounts tightly shut. Don’t be tempted to give the new loved one in your life any financial assistance.

Bring your lives together but keep your assets apart. Think long and hard before you succumb to the temptation of selling your home for example, and buying a new property with your new love, especially if they can’t share the cost.

If the relationship suddenly falls apart, as they can, it can be extremely difficult to claw back any funds you may have contributed to your new partner in a moment of passion. As they say, there is no fool like an old fool.

4. Super clever scammers

It is so easy to be taken in by scammers. Don’t think because a website looks professional or because the young person sounded so nice over the phone, that you should trust them with your precious life savings.

The most common scams relate to investing in cryptocurrencies, investing in overblown opportunities that simply sound too good to be true and investments that falsely claim to be endorsed by well-known professionals or sporting identities.

Always do your homework. Take the time to check out the bona fides of whomever you are dealing with and think hard before you sign on the bottom line. A good investment today will be a good investment in a month’s time.

If they are a scammer, most likely they will go away by then. Remember, it’s very easy to block your phone or email or like an increasing number of people, simply don’t answer unless your phone recognises the number.

5. Giving up!

Most importantly, whatever you do in retirement, don’t give up. While it can be a bit embarrassing to make a financial mistake in your later years, it’s very common these days.

Take stock of the situation. Learn as much as you can from the experience so you don’t repeat it and simply move on. Life is too short to focus on the past and for most people, Australia remains a great country to see out your final days.

 

Patricia Howard is a qualified Australian financial adviser with her own licence, who specialises in providing advice to those in or near retirement. She is also the author of The No-Regrets Guide to Retirement: how to live well, invest wisely and make your money last (Wiley) and a former journalist for The Age newspaper.

 

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