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The little mistakes that can ruin your retirement

No matter what your plans for retirement, being financially comfortable is the bedrock, says financial writer Kara Gammell

Small mistakes when planning your retirement can have a big impact on your lifestyle in later life Mark Twain once said “twenty years from now, you will be more disappointed by the things you didn’t do than by the ones you did.” 

While this quip is probably quite relevant in many areas of our lives, when it comes to planning for your retirement, the author was definitely on to something.

Whether you plan on spending old age travelling the world or relaxing with your feet up, having a comfortable retirement usually requires years of regular saving and astute financial planning.

But research by the deVere group , carried out in summer 2015, shows that for the over-fifties, their biggest regret is not saving enough for retirement, and nearly a third felt that it was a mistake to manage their finances without professional advice.

Here we look at some of the most common pension mistakes made by savers, so you hopefully needn’t spend your retirement living with regrets. 

Under-estimating your lifespan

“The biggest mistakes savers can make when it comes to retirement planning is assuming that they will die earlier than is probable,” says Frances Kemp, of Nurture Financial Planning. “It’s very common to underestimate life expectancy and people don’t save enough as a result.”

Independent research shows that people regularly underestimate their likely life expectancy by five or ten years. Figures from the Office for National Statistics (ONS) show that those in their twenties are likely to live to see 100, for instance. The average life expectancy for people in England has risen to 81.3 years in 2013, according to figures published in medical journal The Lancet.  

What’s more, improved medical treatment and diet mean it’s likely that people will spend decades out of the workforce in retirement. Working out how much you need and for how long is key to a comfortable retirement. 

But according to think tank The Social Market Foundation, there is a very real risk that many people who have accessed their pension savings under the Freedoms will end up spending through their pots far too quickly. 

Relying on the State

When doing the sums while retirement planning, many of us think that the government will help fill in the gaps in our pension fund. 

But the government itself admits that less than half of those who reach State Pension Age in the next five years will be eligible for the full flat-rate New State Pension. This is thanks to paying lower National Insurance contributions during their careers - a perk of the old pension system.

Savers should never assume that the State would provide enough for you to live on in retirement, says Philippa Gee, managing director of Philippa Gee Wealth Management. “The constraints of the State's budget put increasing pressure on many types of expenditure, including the State Pension,” she says.

“If you fail to save and have no back up plan, you are destined for failure.”

Relying on someone else 

Most people rely on their partner or spouse for a variety of things, but when it comes to funding old age, you have to make plans for yourself or risk finding yourself penniless in retirement.

“People should never rely on someone else’s pension,” says Philippa. “The fund may die with them, for instance, or be less than expected, or fall victim to a later life divorce.”

She adds that it is important to ensure that everything is documented and spouses/partners are nominated as the beneficiary. “If you are concerned that the relationship is failing and need legal advice, sort that out quickly,” she says.

Of course, with four in ten marriages ending in divorce and one in three lasting less than 20 years, it is entirely possible that relying on a partner’s pension provision may not work out. Pensions can be treated like any other contested asset in divorce, and there are several ways of splitting or sharing a pension between former partners.

The risk of relying on bricks and mortar 

One of the other major issues that could affect your retirement plans is over-estimating the value of your home as a retirement asset. Research from Skipton Building Society shows that almost a fifth (18%) of people still to retire believe they will be able to generate an income in retirement from either selling their own home or taking on a second property. 

But counting on cashing in the equity in your home to fund your retirement might be one way to build a pension pot, but it is not without risk, says Phillipa. “When reality bites, many people realise that they cannot actually manage as they do not want to downsize or use a sum of money that they might have to use to pay for their care, if needed.” 
 
Retirees looking to take on a second property as a Buy To Let should also be aware of incoming changes. From April 2016, purchasers of Buy To Let properties or second houses will usually pay 3% more on Stamp Duty bands. Someone purchasing a Buy To Let property or second home worth £275,000 would see their Stamp Duty bill rise from £3,750 to £12,000.

This article has been commissioned by retiresavvy and any opinions voiced are the author's own. This article was originally published in January 2016 and updated in September 2016.

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