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3 Retirement Mistakes You Should Absolutely Avoid

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This article is for information purposes only, and should not be regarded as financial advice. With investments, your capital is always at risk. The value of your investment can go down as well as up, and you may get back less than you invest. Seek professional financial advice before embarking on any important investment or pension decisions.

Perhaps you’re approaching your final years of work. Or, maybe you are starting out in your career, dreaming about how you will build the perfect retirement lifestyle at the end of it.

As financial advisers in Nottingham, we know that retirement is something to look forward to, regardless of where you are in life. However, people need to be careful.

There are lots of myths going around about retirement, and people are making costly mistakes with often big, protracted financial consequences.

In this article, we’re going to mention 3 of the most common mistakes we encounter in our field of professional, local financial advice in Nottingham.

We hope you find this article helpful, and would love to hear your thoughts in response.

#1 Relying On Property

In British society, we generally view owning a home as an ultimate prize.

There’s nothing wrong with wanting to buy. It’s a very noble goal. The problem comes when people rely on their property as their sole investment for retirement.

The thinking often goes like this: John and Mary get a mortgage on a house together. Their plan is to pay off the mortgage over 25 years, during which time the house should increase in value.

When the time comes to retire, they should have paid off the house. Any children should have moved out by then, so they both should be able to downsize to a smaller property.

The remaining money from the sale of their home, they can use to live off in retirement.

It sounds like a good idea, but as financial advisers we are obliged to tell you there is one fundamental flaw in this strategy: it puts all of your investment eggs in one basket.

Your investment strategy, in other words, is left completely at the mercy of the property market, which rises and falls and sometimes even crashes. What will you do then?

Also, many people do not factor in the costs of downsizing. The costs of moving can be considerable when you factor in stamp duty, estate agent fees, any maintenance that needs to be done like installing outdoor home security cameras and the like.

So, be careful not to rely on your property as your sole retirement investment. Speak to a financial adviser in Nottingham about how to invest in a diversified investment portfolio.

#2 Relying On The Government

In the UK, we’re fortunate to live in a country which provides a state pension.

That said, it is lower than in other OECD countries – currently standing at £164.35 under the full, new state pension. That’s £8,546.20 a year.

It’s better than nothing, but it’s certainly not enough to really enjoy retirement – even if you have paid off your mortgage, and your monthly expenses are lower (e.g. work travel costs).

The fact is, current research suggests you really need to be aiming for a total, yearly retirement income of at least £23000 to have a comfortable retirement.

The state pension may well increase in future years, but you shouldn’t bet on it. People in the UK are living longer, so if anything the government pension pot is likely to be put under further pressure.

As financial advisers in Nottingham, we advise our clients to not rely solely on the government to look after them in retirement.

Setting aside money each month – for instance, in a personal and/or workplace pension – can make a huge difference in your later years. So can efficient tax planning.

#3 Not Saving Early Enough

While it certainly isn’t impossible to start saving towards retirement in later life, it is far easier and effective to start doing so earlier on in your career.

A recent study by Scottish Widows, for instance, showed that if you want an annual income of £23000, then someone at 25 needs to put aside just under £300 a month.

A 35 year old just starting to save would need to save at least £433 a month. The older you get, the worse it gets, with the figures standing at £724 per month for 45 year olds, and £1,445 per month for 55 year olds.

Many young people in particular are walking blindly into pensioner poverty, without even realising it. By saving at least a few hundred pounds each month early on, you can guard against this potential outcome.