Invasion of the pension snatchers

30 Apr 2021

We work hard throughout our professional lives so that we can save up for a decent retirement. Unfortunately, our pension is in danger of being sabotaged by several factors, most of which are our own doing. Most people underestimate how much they will need in retirement.

Beware of these pitfalls as they could leave you with a retirement shortage.

  • Don’t underestimate how long your retirement will last – you may outlive your money. Because of longevity, retirement could last well into your nineties. That’s around 30+ years. You need to budget big expenses into the late years of retirement. It’s common to buy a new car or redo the kitchen when you retire so you are set for retirement. But after 25-30 years that car is ancient, and the kitchen is showing wear. This needs to be planned into retirement.
  • Dipping into your retirement savings early – if you are fortunate enough that your retirement savings are earning good returns, you might be tempted to dig into your savings for a big expense. Afterall, your pension pot is performing better than expected and you still have plenty still to live off, right? Remember, markets don’t always do well and less capital means less monthly income at retirement. That large amount might seem like a lot, but it must last for 30+ years. 
  • Medical expenses – hopefully you are fortunate enough to retire in a country with excellent free healthcare, but if you retire abroad, you might have to pay for your own medical expenses. Consider that in the later years of retirement, your medical care needs will increase. This will eat into your retirement savings. Consider adding medical insurance into your retirement budget.
  • Skimming your retirement savings to help your kids – Life happens. Your kids might get divorced and end up back home with you. Suddenly you have children and grandchildren to care for, or you help your children with a loan for a business venture.  This will take a huge chunk out of your retirement savings and could never recover. Be careful, you might have to downsize significantly when you retire.
  • Retirement hobby business – you have a plan in place. When you retire, you will turn your hobby into a business. You will use part of your savings to get up and running. It’s a great idea, but remember, more often than not the hobby business will run at a loss. Careful if you are not business savvy or have no experience in business. A start up takes a long time to build and generate income. If it fails, your retirement savings will have taken a big knock. More downsizing.
  • Divorce and remarriage – Divorce and remarriage could also ruin your retirement savings permanently. You might only end up with half of what you had planned on. Remarriage means double retirement expenses that you might not have planned for. More downsizing.
  • Not budgeting for travel – when you retire, you take lots of trips to visit family all over. Your savings seem huge, but it could take a fair chunk out of your savings if you didn’t budget for it in your monthly pension. *

When you retire, the capital saved up will probably be the most money you’ve ever had in your bank account your entire life. Remember that it must last for the next 30 odd years. Your financial adviser can help you plan for all these unforeseen or unthought of expenses, so you don’t find yourself in a situation where you need to downsize your retirement lifestyle or keep working. [email protected]
* https://www.rd.com/

Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere adviser for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.