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The five financial mistakes that can make for an unhappy retirement

One in three girls and one in five boys born this year will live beyond their 90th birthday, reports the latest Office for National Statistics research. Centenarians are, believe it or not, the fastest growing age group, increasing by 92% over the past decade.

Despite the regularly depressing newspaper and TV headlines, the population is on the increase and living longer. Even in third world and developing countries, life expectancy is increasing to the point where a number of generations can expect to be alive at the same time.

The state pension, long viewed as one of the financial mainstays in retirement, is increasingly unable to meet people’s expectations for a satisfactory standard of living in retirement. It is, therefore, important people plan for retirement and understand where their planning may leave them short.

Here are the five most common mistakes we see people make.

1. Underestimating how long you will live

Sitting alongside an increased life-expectancy is the question of how that time will be used. People have an expectation that they will still be able to travel, carry on outdoor pursuits and act in a way that is not in keeping with their traditional age. I have clients who are, for example, travelling abroad well into their 80s, and living life to the full, including white water rafting and parachute jumps! Whilst that may not be to everyone’s taste, medicine, dietary restrictions and overall feelings of wellbeing mean that a healthy bank balance is imperative if people are to continue to enjoy an active life long into their retirement.

2. Underestimating how much savings you will need to live on

We all know that inflation has an effect on the value of our money. As a simple guide, if inflation is 7% then then the buying power of money halves every 10 years. At 5% then this is every 15 years. As an example, if you were to buy a loaf of bread in 1964 it would have cost 5.8 pence, whereas today it now costs £1.14. A pint of milk was 3.8 pence and is now 45 pence, and a pint of beer was 7.8 pence and now costs £3.60. The point is that things get more expensive and we need to ensure that our savings and income keep up with these increases.

We need to ensure that sufficient savings are made, the earlier the better and more in tune with our future requirements. Retirement is hopefully the longest holiday of your life!

3. Not having a planned approach to saving

The majority of the people I speak to do not have a reasonable understanding of the amount they need to save for a satisfactory standard of living at retirement. The earlier people start the better, and there are various formulas which aim to guide people over how much they should save - such as dividing your current age by two and putting this figure as a percentage of your salary in to pensions. Whilst these may not always be right, at least they lead us in the right direction in respect of putting monies aside.

We all need to plan efficiently by committing to an amount of money each month that balances affordability with our long-term expectations.

4. Not managing the value of assets against the vagaries of the markets, economy and politics

We regularly come across investment portfolios that have been left to stagnate. Stock markets can be volatile and it is worth noting that most asset classes such as cash, equities and corporate bonds rarely feature in the top quarter for any period of time. Regular reviews and updates will help individuals keep their monies growing according to plan.

5. Having no plan at all

Life is a journey and we do need to make the best of what we have. But having no plan for later life to try and ease financial burden is folly. Questions such as ‘when do you want to retire?’, ‘What money do you need at that time?’, and ‘Where will you receive this money from?’ are all questions that need to be answered. Set the plan, formulate the process and achieve success.

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