Earlier this week, I outlined 5 of the 10 most common mistakes I see retirees make all the time, and as promised I am following up with the remaining 5 now.

1. Retiring without a plan

It’s much easier to spend money on holidays if you are confident with your finances and the plan you have in place. But it amazes me how many people retire without a plan. They have no idea how much they need each month, where they are going to invest their money etc. and if you are making it up as you go along, and you become complacent about your finances, assuming everything will be okay, you are putting your finances and your quality of life in jeopardy

And it doesn’t have to be a very complicated plan either. At a minimum you want to know, how much you need to spend each month, without the fear of ever running out of money.

2. Not changing lifestyle after retirement

You have a new income now that you have retired, and one of the biggest mistakes newly retirees make is not adjusting their expenses to reflect their new reality. And it is hard and it does take a period adjustment to figure out how much you absolutely need. And there may be a number you need each month and it doesn’t fit into your new income, so you might have to eat out less or not get as many take away’s for example than you did while you were in the workforce when your income was bigger.

Before you enter retirement, you must take into account you will be living on a lower income, so you must figure out if it is enough to cover your annual outgoings. And if it isn’t some think that because they have a large lump sum, they can use it to supplement their income, and if this is the case, I hope the lump sum is big enough to last a long time because I hope you will be around for a long time!

So avoid the temptation if you can of using that nest egg of yours to help fund a lifestyle. You will need to make adjustments and you may need to be a bit more disciplined and how you can do this is the old fashioned and boring way – work out a budget for how much money you need each month

If there is a deficit, look at ways of cutting back but you need to know what you are up against first. And a great exercise I get people who are about 6 months’ away from retiring is to look at what their income will become and see, even before they leave, if they can live off it. It might be a shock to the system but it is a great exercise of looking into the near future to see what things will be like, so there won’t be any surprises when you do retire. And you are giving yourself that breathing space now, before your retire, to look at ways you may have to adjust your finances. 

3. Managing their own fund

The majority of people who retire nowadays, use their pension fund to invest in an approved retirement fund (ARF) rather than buying an annuity (An annuity is a contract where in exchange for a lump sum an insurance company would give you a fixed pension for the rest of your life) because they have more flexibility with and ARF than they have with an annuity, and importantly the fund is not lost in death as is the case with most annuities.

And just because you start drawing down the minimum requirements from the fund (has to be 4% from your 61st birthday) doesn't mean the funds aren't invested anymore, because they are. And where they are invested and what return you achieve each year will have a big influence on how long the fund will last and how much you can take from it each year.

If you are too conservative with the fund and invest everything in cash, it will quickly eat into the value of your fund. And if you invest too much in high risk equites you run the risk of wiping out your fund, so you need to strike a balance and invest in a diversified fund that has exposure to a mix of cash, bonds and equities.

A mother of a client of mine I was asked to meet recently had an ARF and she needed to draw down 7% of the value of the fund to meet her annual outgoings. The ARF fund was invested in cash only and along with the 7% draw down and the 1% annual management charge, the cash burn at that rate, would mean her fund would be exhausted in 14.7 years. If her monies were invested in a very low risk ARF fund that achieved an annual return of just 2%, her fund would last for 21.3 years even if she continued to take 7% from it, each year.

Once you are retired, you can’t afford large negative swings in your savings, so where your funds are invested is incredibly important, as the example I have just shown you demonstrates. You need to take an active interest in knowing what you are investing in, so striking that balance which is right for you, and getting help in this regard is so important.

And I would caution against the do it yourself approach unless you were happy with your knowledge levels and this was an area that interested you, and you had time to monitor funds and deal with life companies. I have seen people make the mistake of managing their own fund because they thought they could do as good a job than any fund manager could, and they would save fees in the process.  But they quickly figure out it isn’t as easy as they thought and they can get very stressed and overwhelmed by it all.

4. Continuing to financially support adult children

It is hard to refuse a family member if they come to you for help because they are under pressure repaying a loan or mortgage, or they have short term cash flow problems. But you have to remember that your income will be largely fixed in retirement as will your savings. Helping family out with lump sums and using your income to supplement theirs each month is doing you no favours because you won’t have the time to recover from financial difficulties, unlike them.

Unless you are absolutely confident and 100% sure that (A) you have the money to spare, (B) the reason you are giving it to them is a good one, then I would caution against giving lump sum gifts or loans, call them what you like.

Remind yourself and your children you are no longer earning the same income as you did when you still had a job. And whilst this might seem a bit harsh, it’s a fact.

5. Not reaching out and asking for help

This, I think might be the biggest mistake of them all, because the nine mistakes I just referred to are the consequence of not getting the help and assistance of an independent financial professional.

Please reach out and get help if you need it, because the peace of mind it will give you and your family, really is hard to calculate.