Retirement planning can be a minefield which usually results in one of two behaviours: sticking one’s head in the sand to avoid worrying about it at the time or being proactive and taking control to make sure retirement is a time of joy not worry.
For those in the former camp there are 5 common misconceptions I regularly hear as an excuse to not take retirement planning seriously.
1 – Pensions are a bad investment
My response: only if they are managed poorly. A pension is just a tax wrapper (an effective one at that). It is taking inadvisable investment decisions; too much risk, not enough risk, not reviewing them and not paying enough in early enough or regularly enough that is reason they become ‘bad’ investments.
Linked to this is the misconception that you lose them when you die. This used to be the case until George Osbornne announced “nobody would have to buy an annuity again” and created the pension freedom rules.
2 – I’ll get bored not having to work every day
My response: when you have worked 5 (6?) days a week for over 30 years it is hard to imagine life without it, wondering how you will fill your days. However, speaking to retirees most will say they don’t know where the time goes.
It’s an opportunity to do all the things that working life prevented you from doing whilst you are agile enough. Possibly to include helping those less fortunate than yourself through the benefit of your time and experience.
It’s not often I meet anyone who regrets retiring. As the adage states: “nobody died wishing they spent more time in the office”.
3- Selling my business will fund my retirement (or a future generation will take it over)
My response: that’s a risky game. There is so much you can’t control in the business environment no matter how experienced you are. Are you really prepared to risk your future financial well being on you getting the value you want/need for it when you are ready to stop?
If you can sell your business for a decent sum, great! Just plan for it being a bonus rather than a necessity.
4 – Investing money is too risky
My response: as per (1) above. Only if you take inappropriate actions. The greater risk is doing nothing; history informs us that over the long term investing in the stock markets provides the greatest return of any asset class. Missing out on returns means less capital from which to provide an income in retirement.
The secret to investing is to do it regularly, over a long period of time, be patient and keep costs low.
5- We’ll spend less in retirement so don’t need a big pot of money
My response: possibly, but not necessarily. Some costs will go or reduce: commuting, tax, mortgage payments, life assurances for example.
On the flip side you will find you spend more than you expect on leisure activities because you have more time. You will probably travel more than you envisaged and the cost of heating a home during the winter months when you are around more will add up.
When you no longer have regular earned income coming in you will probably notice the cost of inflation more than during your working life.
Sometimes we need to challenge our thinking in certain areas particularly when our misconceptions may cost us later. Retirement planning is certainly one of these areas so take the time now to get your ducks in a row. You’ll be glad you did.