The three biggest mistakes in retirement

While I have been advising Australians on how to best live in retirement, it still amazes me how often I come across people who are making the same old common mistakes when it comes to structuring their finances in retirement.

Here are the biggest mistakes people still make.

1.     Pulling money out of super

I certainly understand why people do this. Most Australians hate super because it’s been forced on them and because they feel they have little if any control over it. So as soon as they can, come retirement, they withdraw whatever money they have in super.

It is though the number one mistake you can make in retirement. No matter how much money you have or how little you have in retirement, the best place for your savings is inside super, where if managed correctly it can sit in a tax-free environment.

Not just for one year but throughout your retirement. If set up correctly, you won’t pay tax on any capital gains, any income or any income you receive from it. As soon as you pull funds out of super, they can be subject to tax. So the choice is simple.

2.    Investing in term deposits

Again, it is easy to understand why people in retirement put their savings in term deposits. They think it is100 per cent safe and they are correct. If you put money into a term deposit with one of Australia’s big banks, it will be safe, and you will receive some interest on the way through.

This is a mistake though for several reasons. There is no capital growth in a term deposit, so your savings are constantly being eroded by inflation. That is $10,000 in a term deposit if left there won’t buy as much in 10 years as it will today.

You need some capital growth on your investments in retirement. The income you receive is meagre from a term deposit and if you hold these assets outside super, you could even be taxed on this meagre amount.

The worse part of investing in term deposits is it doesn’t take much and you will soon start hunting for the best return. This always tempts people away from the big banks and into a raft of investments that look like term deposits but so often turn into little more than high risk scams.

3.    Not getting advice

I know this is self-serving because I earn my living from being a financial adviser but not getting advice about your finances is the biggest single mistake you can make. Most Australians live happily in retirement with their finances securely and safely invested.

However, there are a number of steps you can take to ensure you take full advantage of the most the generous tax and superannuation concessions on offer to older Australians.

The rules are not always simple and the cost of getting them wrong can be substantial. So, the final big mistake people make is not accessing quality advice as early as possible.