Having spent their 40s and 50s carefully following markets to insure their retirement investments are diversified, secure, and most importantly, lucrative, many individuals begin to taper their interest as they reach retirement age.
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It seems like the hard work has been done, and now it is time to enjoy the ‘golden years’.
However there is a lot to be said for keeping a close eye on your investments well into retirement. Not only can your pot increase, it can decrease, and whilst an unavoidable market crash or similar may be to blame, sometimes it is the disinterest of the individual at hand.
Therefore, retirement is the time to take more – and not less – care with your investments, to ensure your pension pot continues to grow, and support you and your family.
With this in mind, here are some of the major retirement investment mistakes you should avoid at all costs:
Overspending in the early years
Many times, new retirees “celebrate” their new lifestyle by taking on world cruises, new cars, or larger homes.
Whilst you should no means live a meager lifestyle, these extravagances can often cause unexpected financial stress if the stock market fluctuates too heavily.
Yet by creating a budget for your first two years, you can live a comfortable retirement without jeopardising the 20-plus years yet to happen.
Buying an annuity
Retirees often begin retirement with no idea where to begin investing – and so become prey for salesmen offering worry-free, and seemingly risk-free annuities.
However, once the retiree realises this comes at a substantial cost, it’s too late to get out.
The fix is easy however, just like planning a budget and sticking to it, so you should practice extreme caution in your pension decisions for the first half year or year.
Once you have completed the research, and have an idea what you would like to get out of your fund, you may wish to talk to an independent financial advisor who can access the options for you without bias.
Underestimating inflation
Whilst is a known that many new retirees underestimate how much they will need during retirement, the less known fact is that many individuals also dramatically underestimate how long the purchasing power of their pension pot will hold up over the decades of retirement.
In ideal markets, Forbes states “it takes seven years to double your money, and about 25 for it to lose half its value from inflation.”
Consequently, a long-term investment portfolio should give you a return above inflation, with minimum risk.
Focusing purely on equities
Whilst equities offer the highest gains, they are also one of the most volatile asset classes you can invest in.
Not only might this negatively affect your pension pot – and therefore retirement – taking high risk investments throughout your retirement might not give you the relaxing golden years you deserve, and lead to panicked decisions; with often dangerous outcomes.
Ensure you have enough low-risk bonds to balance your portfolio, and consider either real estate or venture capital funds to further diversify your portfolio.
Focusing too heavily on bonds
Whilst bonds are most definitely low risk, they also run the risk of losing power to inflation.
In addition, having a bond-heavy portfolio could be a catastrophe if, for whatever reason, bond values plummet.
Therefore a small allocation of the more risky equities can give some much-needed balance to your portfolio, and often offer extra-large returns which can offset the aforementioned corrosive inflation.
Read our insights and find out what countries have the lowest retirement age.
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