Four retirement planning blind spots to avoid

This financial year, investors face a difficult and turbulent time, with rate hikes and cost-of-living pressures forcing many to reconsider their retirement date or adjust their long-term financial plans.

So how can investors manage their financial plan effectively and avoid retirement planning blind spots? Below, I share the common traps investors can fall into and how to avoid them, to help keep retirement planning on track.

1. Failing to plan retirement expenditure in stages

While retirement planning can involve working towards one big goal, it is also important to look at how you will spend your retirement and how much money you require to fund the lifestyle you want. This may require re-assessing your financial plan to ensure you have the funds to retire at the age you have set.

For example, many retirees plan major expenses in the earliest part of their retirement, using their newfound time and resources to commit to those projects. If you’re planning to build a nest egg that replenishes funds through to the end of your life through interest and earnings, account for major reductions in your available savings that may impact the amount of money you can access in retirement.

Some individuals may choose to minimise withdrawals in a falling market, cut back on non-essential spending or set money aside for an emergency fund.

2. Failing to consider your family’s future finances

Some individuals may set up a trust to help them transfer assets to family members while they are still alive. As opposed to a will, a family trust allows the assets of the trust to be distributed over the trustee’s lifetime. However, after-death issues may arise if there is no Will for this structure.

It is important to note that there are also costs involved when setting up a trust and it does not necessarily guarantee the security of your future finances. You may want to also factor in the potential to withdraw money from your trust to cover aged-care expenses, if needed.

I recommend discussing family trusts with your financial adviser to determine if it is the most appropriate option for you and to factor in any situations you may encounter in the future. A lawyer is also required to draft a trust and it can be advantageous to review your Will at this time to ensure it matches your current wishes.

3. Failing to clear your debts.

Avoid carrying debt - and potential financial stress - into your retirement by clearing any outstanding payments as early as possible. Some individuals may choose to make extra repayments on their loans regularly if and when they can. Some individuals also consolidating their debts into one loan to reduce the number of payments they make, as well as fees and interest.

Creating a budget plan to track short-, medium- and long-term financial goals can also help you take control of your finances. Shopping around for credit-line options, such as zero-interest balance transfer credit cards and low-rate loans, could help you reduce interest.

4. Failing to understand the ins and outs of your superannuation

Superannuation funds may seem complex if you’ve never looked deeper into how they work, but now is as crucial a time as ever to examine your superannuation fund and ensure it’s performing in a way that will help you reach your retirement goals.

There are many aspects to consider when comparing funds but knowing how your money is invested and the potential returns on your investments are vital. Speaking to a financial adviser can help you gain a better understanding of your retirement fund and how to create the most appropriate investment portfolio based on your goals.

*Helen Baker is a financial adviser, author, speaker and spokesperson for online finance information platform, Money.com.au. Helen has a passion for empowering Aussies to find financial freedom through strategic planning and goals-based financial advice. She has worked as a qualified financial adviser since 2009 and was a finalist in both the Financial Planner/Advisor of the Year and Women’s Community Program of the Year categories in 2017 as well.

This article is intended to provide general information only, and not financial advice. Before acting on any information in this article, you should consider your individual and business circumstances, and seek independent and professional legal, financial, taxation or other advice to help you determine whether these actions are appropriate for your needs.