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September 13, 2023

Top 5 Biggest Retirement Planning Mistakes

Katya Richardson

Written by Katya Richardson

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Top 5 Aussies Biggest Retirement Planning Mistakes

When it comes to retirement planning, too many people make the same mistakes, resulting in unpleasant financial surprises later on. Ever had that feeling of nerves when you think about your retirement? Well, it’s natural for retirement to seem a bit overwhelming that’s why the choices we make now will shape our future comfort. 

Many Australians, despite their best efforts, fall into common traps when planning for those golden years. To avoid these retirement mistakes, it’s best to have a strategy in place that helps you steer clear of common errors and set yourself up for a relaxed and rewarding retirement. 

Now let’s learn about the five most common mistakes and how to avoid them. 

5 Retirement Planning Blunders

Even though it is impossible to foresee future financial obstacles, people continue to make the following five classic retirement blunders:

1. Not Adjusting Expenses To New Budget In Retirement

Create a strategy that takes into account your predicted lifespan to avoid undermining your retirement and running out of money. Before deciding how much to save, consider your desired retirement age, location, health, and lifestyle choices.

Why are all of these seemingly insignificant details so crucial? Because our lifestyles, the items we need, and even our habits change exponentially. You may need to change your spending habits to fit in with a new budget that will lead to a more comfortable retirement. By doing this, you can help better set yourself up for the future and avoid these common retirement issues.

2. Not Enough Retirement Savings

According to a survey by the Australian National University, most Australians agree that retirement income does not necessarily have to be equal to their current income. The majority of Australians estimate that their retirement income should equal 70% of their present income.

As per data from the Australian Bureau of Statistics, the present national median personal income stands at $1,800 per week and the average annual salary is $68,900 at the moment.

To be eligible for the full-age pension as a single person, your income must not exceed $204 per fortnight (approximately $5,304 per year). However, you can still qualify for a partial Age Pension if your earnings are below $2,332.00 per fortnight (approximately $60,632 per year).

The ASFA Retirement Standard provides estimates of the annual budget required by retirees to maintain either a “modest” or a “comfortable” standard of living. These estimates include expenses related to various aspects of life, such as housing, health care, transportation, food, and leisure activities.

Here is a brief overview of the two categories within the ASFA Retirement Standard:

ASFA Retirement StandardAnnual Living CostsWeekly Living Costs
Couple - Modest$45,946$883.57
Couple - Comfortable$70,806$1,361.65
Single - Modest$31,861$612.82
Single - Comfortable$50,207$965.51

Some Ways to Get Your Retirement On Track:

To ensure a good retirement despite a shortage, take steps to get back on track and secure a comfortable future. Some ways you can do this are:

  • You can raise your savings rate by lowering wasteful expenditures and eliminating credit card and personal debt.
  • You can delay retirement, change your retirement plans, or sell assets to boost your superannuation savings.
  • Simply by being aware of your existing and projected retirement funds, you can take steps to better your circumstances.

3. Forgetting Healthcare Costs

In addition to insurance, have you given retirement health insurance any thought?

Medicare is a comprehensive public healthcare system that allows everyone with a Medicare card to obtain free medical care in a public hospital. The bulk of medically required procedures are provided for free for citizens, permanent residents, and some travellers.

The majority of the expense of the medical care that private patients receive is covered by a health fund because the majority of them have private health insurance. However, the majority of private procedures still entail out-of-pocket expenses even after the health insurance benefit.

Here’s a list of both public and private healthcare options, each with its own set of advantages and disadvantages. Keep these factors in mind when you’re planning your finances.

Public and private healthcare pros and cons
Public healthcare will not cover additional cover.Offer coverage for services not fully covered by Medicare, such as dental care, physiotherapy, and optical services.
Some out-of-hospital treatments, such as GP and specialist visits, as well as some medications, are covered.Private health may cover a broader range of treatments and medications, including newer and more expensive options that may not be available through the public system.
As a public patient, you will frequently be required to share a room with other patients.Private health often covers the cost of a private room during hospital stays, offering more comfort and privacy.
In the public healthcare system, elective procedures may have longer waiting lists. Private health insurance can provide faster access to treatments, reducing the impact on your health.
For your treatment in public healthcare, you will be assigned a doctor or surgeon.Allows you to choose your preferred doctor or specialist for procedures, ensuring you receive personalized care.

Common Retirement Medical Conditions or Procedures with Additional Costs:

  • Joint Replacements: Conditions like osteoarthritis often lead to joint replacements, such as hip and knee replacements. While public healthcare covers these procedures, private health insurance can offer faster access to surgeries, choice of surgeon, and the option for private hospital rooms.
  • Cardiovascular Procedures: Heart-related conditions, including coronary artery bypass surgery and angioplasty, may require timely intervention. Private health insurance can provide access to top cardiologists and quicker elective procedures.
  • Cataract Surgery: Cataracts are a common age-related condition that can affect vision. Private health insurance may cover the cost of premium intraocular lenses, reducing the need for glasses after surgery.
  • Cancer Treatments: While public healthcare provides cancer treatments, private health insurance can offer benefits like access to cutting-edge treatments, shorter wait times for chemotherapy or radiation, and coverage for experimental treatments.
  • Gastrointestinal Procedures: Conditions like diverticulitis or colon cancer may require procedures like colonoscopies. Private health insurance can provide quicker access to these procedures and coverage for any associated costs.

4. Suffering the Impacts of Inflation

While your super fund and age pension may appear to be sufficient at present time, additional investments help to mitigate the impact of inflation and other costs in the future.

Inflation and changes in interest rates are just part of how our economy works. Inflation is the gradual increase in the overall price level of goods and services in an economy. It can be caused by various factors, including increased demand, higher production costs, and wage pressures. That’s inflation at play, and it means our dollars don’t stretch as far as they used to.

Australia’s annual inflation rate between June 2022 and early 2023, is approximately 6.93%. This means that, on average, prices for goods and services in Australia increased by approximately 6.93% over this one-year period. 

The median dwelling price for Australia now sits at $728,831. Some economists predict a 40-50% growth in Australia’s house prices between now and 2030, That would put Australia’s median dwelling price at around $1.1 million in 2030.

The rising cost of living may force you to reconsider your retirement plans. It is an excellent concept to include inflation into your investment plan. To hedge against inflation, think about boosting your savings, contributing to your retirement account, and diversifying your holdings.

5. Too Late to Diversify Income

Financial experts commonly recommend diversifying investments, suggesting that individuals distribute their funds across a range of investment options. Because diversification reduces risk, it makes sense to diversify a financial portfolio for wealth management.

Look around for a financial organisation that provides a variety of financial goods and investment options. Consider purchasing investment products that are simple to sell or convert to cash.

Here are the Different Assets to Consider for Wealth Management and a Diversified Portfolio:

  • Cash Investments: Cash investments like savings accounts and term deposits give you a steady and safe income through regular interest payments. They are a good option if you don’t like taking risks or need money quickly.
  • Fixed Interest or Fixed Income Investments: Fixed interest investments, also called bonds, usually last for 5 years and give regular income through higher interest payments. Governments and companies in Australia and globally issue these investments.
  • Shares: Buying shares in a company means you own a part of that company. If the value of the shares goes up, your investment also goes up. If the company makes money, you might get some of the profit as dividends.
  • Managed Funds: A managed fund is like a collective piggy bank where people put their money. The big win? By joining forces in this pool, you get a slice of investments you might not have reached on your own. It’s a handy way to diversify your savings.
  • Exchange Traded Funds (ETFs): An exchange-traded fund (ETF) is a type of managed fund that may be bought and sold on a stock exchange, such as the Australian Stock Exchange (ASX). 
  • Investment Bonds: An investment or growth bond is like a managed fund. It combines money from investors and is managed by an investment manager who makes daily investment decisions.
  • Annuities: Annuities provide a fixed income regardless of market conditions. They can be paid out over a fixed term or for life. Investors determine the amount received based on the amount invested and actuarial calculations.
  • Cryptocurrency: Cryptocurrency investments involve purchasing and holding digital currencies with the potential for capital appreciation over time. This option suits you if you seeking higher growth potential and are willing to tolerate market fluctuations.
  • Cryptocurrency Mining: Cryptocurrency mining can be seen as an alternative investment avenue, where you can earn cryptocurrencies by contributing your computing power to the network. Cryptocurrency mining can be profitable, especially when the value of the mined coins appreciates over time.

In the journey towards securing your financial future, avoiding these common retirement planning pitfalls is paramount. Remember, meticulous planning and informed decisions today can pave the way for a comfortable and worry-free retirement tomorrow. By steering clear of these significant missteps, you’re well on your way to a retirement that’s everything you’ve envisioned.

The information presented on this website is general information only. It should not be taken as constituting professional advice from the website owner – Hiddup PTY LTD (Hiddup). Any information regarding past performance and returns contained on this website should not be construed or interpreted as a prediction or opinion as to future performance and returns. Hiddup is not a financial adviser. All views and observations expressed by Hiddup on this website are for information purposes only, are general in nature and should not be treated as investment or financial advice of any kind.