Five mistakes to avoid when saving for retirement

The average retiree will have generated savings that will purchase a pension of only 30% of the salary they were earning before retirement.

It’s a gloomy statistic, suggesting that we’re either not well informed, are not getting the right advice or are still doing something wrong when it comes to planning for retirement.

Linda Sherlock, head of advisory at Alexander Forbes Retail Holdings, outlines the five mistakes we tend to make most often.

  • We start saving too late. Sherlock says we’re more concerned with making ends meet and paying off debt than saving when we’re young.
    “This is understandable, but contributions made earlier on in life often have a longer time to multiply—this is the power of compound interest,” says Sherlock.

  • We spend our retirement benefits when changing jobs. “When you change your job, place your retirement benefits in other retirement funding vehicles, so the lump sum saved and invested to date is untouched. It can also grow through appropriate exposure to investment markets. You can move your fund to your new employer’s fund, a preservation fund or a retirement annuity fund,” Sherlock advises.

  • We invest unwisely or incorrectly during our working years. People commonly invest too conservatively for retirement. “It’s true that over the short term cash can be a safe investment, but you must remember that over the long term, cash returns have not performed better than shares and they do not beat inflation much,” says Sherlock.

  • We time the stock market. We often think we can predict what will happen with the stock market and change our investments in line with this. But research shows it very seldom works and timing the markets often ends up destroying retirement savings.

  • We don’t take expert advice. “To avoid making these costly mistakes, it’s better to start seeing a financial adviser during your working life and continue to get professional advice after retirement,” says Sherlock.
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