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The 8 Biggest Retirement Planning Mistakes Australians Make

Mistakes Australian retirees make

Retirement planning is a crucial phase of life that requires careful consideration and strategic decision-making. As you approach this milestone, it’s essential to avoid common pitfalls that could derail your financial security and peace of mind. 

In this comprehensive guide, we’ll outline the 8 biggest retirement planning mistakes Australians make and offer valuable insights to help you navigate this critical stage with confidence.

Not taking full advantage of superannuation

Mistake #1: Saving all of your money outside of super

Saving your excess money outside of super can be inefficient. With tax rates reaching up to 47%, leveraging the tax benefits of super contributions, taxed at just 15%, can significantly boost your retirement savings.

Mistake #2: Not finding the right superannuation fund for you

Sticking with the same super fund without periodic comparisons could result in excessive fees. It’s essential to assess the fund’s performance after fees regularly and to compare it to a variety of funds to ensure optimal outcomes.

Mistake #3: Choosing the wrong investment option for your phase of life

Selecting the appropriate asset allocation within your super fund is crucial. While high-growth investments may offer greater potential returns, they also carry higher volatility, which could impact your retirement plans, especially if you’re nearing retirement age.

It’s important to optimise your asset allocation not just for volatility, but for tax. Particularly if you’re invested outside of super, important considerations include franking credits, capital gains tax, and income tax.

Having an unrealistic budget (or none at all)

Budgeting for the future is difficult. There is a lot more to it than guessing the weekly grocery bill, or even weekly expenses on their own. Considering the ongoing changes in both the economy and your cost of living are essential. 

Mistake #4: Not including inflation in your budget

Failing to account for inflation can erode the purchasing power of your retirement savings over time. It’s essential to adjust your budget for inflation to maintain your desired standard of living throughout retirement.

Here’s a confronting example: The same $100 grocery bill twenty years ago would now cost you over $170; if inflation continues at 3% per annum for the next 20 years, these same groceries will cost over $300 in 2044. Try out this calculator from the RBA here

Mistake #5: Not considering rising healthcare costs and one-off expenses

Health-related expenses and unexpected costs can significantly impact your retirement budget. Planning for rising healthcare costs and accounting for one-off expenses, such as home renovations or major purchases, is crucial for long-term financial stability.

Not considering the pension (even down the track)

Mistake #6: Not thinking that you might get a partial pension, even in the future

Many retirees overlook the possibility of receiving a partial pension, assuming they won’t be eligible due to their financial assets. However, many factors go into assessing your eligibility.

For instance, if you and your partner own your own home and a million dollars in assets, you are still eligible for a partial pension and a Commonwealth Seniors Health Card.

Mistake #7: Thinking you’ll get a full pension without considering eligibility criteria

Eligibility for the aged pension is subject to various factors, including residency status, asset tests, and income thresholds. It’s essential to understand the eligibility criteria and plan accordingly to avoid surprises during retirement.

Two of the most common ways that people lose their eligibility for a pension are by becoming a non-tax resident before applying or mistakenly thinking that gifting a large amount of their money to their family will put them below the threshold.

Failure to make a solid retirement plan

Mistake #8: Attempting to DIY a retirement plan without expert guidance

While it’s tempting to manage your retirement planning independently, seeking professional advice can provide valuable insights and ensure comprehensive coverage of your financial needs and goals. A tailored retirement plan crafted by experienced advisors can help you navigate uncertainties and achieve financial security in retirement.

Final thoughts

Avoiding these common retirement planning mistakes is essential for securing your financial future and enjoying a comfortable retirement. Don’t hesitate to reach out to our team at Advice Loop for a no-obligation consultation. We’re here to support you in creating a personalized retirement plan that aligns with your aspirations and safeguards your financial well-being.

Secure your financial future today!