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Common retirement mistakes and how to avoid them

Want to make the most of your retirement? Try to avoid these common retirement mistakes.
Common retirement mistakes and how to avoid them
Reading time: 7 mins

Who doesn’t have a retirement dream? Whether it’s spending peaceful days in the countryside or going on adventures abroad, the key to achieving your retirement goal is to start planning for your future life. And if you want to make the most of your golden years, not only does it pay to be prepared, it’s also important to try and avoid these five common pitfalls.


Having no plan for retirement
A common mistake is to approach retirement without a plan of action. If you don’t choose an age to retire or calculate how much you’ll potentially need in later life, you’ll likely struggle to plan ahead. So, make sure you get everything sorted out in advance. Planning for retirement can feel daunting, there’s no denying it, but taking a few baby steps at a time could help you get all set for later life. For instance, you could start by checking how much you’ve got saved in your state and workplace pensions. Also, it could be a good idea to decide when you’d like to finish work and list all your retirement needs. Where will you be living? Will you be renting? What kinds of expenses do you think you’ll be paying? And don’t forget to include health costs in your plan as they could potentially drain your finances as you grow old. Of course, it’s not an exact science and you’ll always be able to refine your estimate as retirement approaches. But choosing your retirement age and drawing up a budget for your golden years will give you an idea of how much you’ll need in your retirement pot, and it’ll likely make later life a little bit easier.


Delaying your retirement journey
Retirement may still seem a long way off and it’s very tempting to forget about it. After all, you may have other financial matters to deal with and retirement isn’t on top of your list. This is completely understandable, but if you delay your retirement journey, you could be hurting your golden years as your money will have less time to potentially grow. If you want to make the most of your retirement, it’s important to put money aside sooner rather than later. For example, you could start looking at all the options available to you. If you’re living and working in the UK, you may be able to claim a state pension. Typically, provided you’re earning more than £166 a week, your company will pay in your national insurance contributions out of your salary. One thing to keep in mind though is that you’ll need to have contributions made for at least 10 years before you can receive any pension from the government. And after 35 years, you should be able to claim the full state pension which is currently set at £9,110 a year1. So, make sure you’re on top of your contributions. Also, if you’re employed, you should be enrolled in a workplace pension where you and your employer make contributions out of your pay. It could be worth checking how your pension is doing, and if you’ve contributed to different workplace pensions, make sure you know where they are. If you’re in a strong position financially, consider opening a personal pension. Not only does it let you make your own contributions, it could also help boost your retirement.


Not saving enough for retirement
When it comes to saving for retirement, many people fail to put enough money aside and it could have significant repercussions during their golden years. If you want to avoid any nasty surprises in retirement, it could help to calculate how much you’ll need saved in your pension pot. That way you can keep track of your progress, and you’ll know whether you’re ahead or behind your target. Also, as you start earning more money and clearing off debts, you could consider increasing your pension contributions. If you have a workplace pension, you must contribute at least 5% of your salary, but if you can afford it, it could be a good idea to increase the portion you put in your pot. Similarly, if you’re paying into a personal pension, or SIPP, you could try and pay in a bit more. Over the long-term, this could make a bit of a difference. Let’s say you’re 25 and put £50 a month in a personal pension. After 40 years, you could get around £70,6862. But if you had put an extra £5 and paid in £55 a month, you could have ended up with £77,7543.


Ignoring personal pensions and SIPPs
When people think about pensions, they usually think about state and workplace pension schemes, not much about SIPPs (Self-Invested Personal Pensions). And yet, SIPPs could help you take control of your retirement. By ignoring them, you could be missing out on potential extra retirement income. So, if you’re doing well with your finances, you could give your retirement pot a little push. But how do SIPPs work, you ask? A SIPP is a type of personal pension that lets you make your own contributions. Once you’ve paid into your SIPP, your money will get invested in a large range of investments, such as shares, bonds, and property. More importantly, with a SIPP, you’ll get a 25% top up. What does that mean? It simply means that for every £100 investment you’ll only need to pay in £80, as the government will add the rest. However, the amount you can invest tax-efficiently in a SIPP is limited, and currently, it is set to £40,000 a year, or 100% of your earnings (whichever is lower) – this pension annual allowance is the combined contributions made by you and the government. If you have more in your account though, you may need to pay tax on the extra.

Getting started with a SIPP is not as difficult as you might think. You can either do it yourself, and pick your own investments using a DIY investing platform, or you can choose to have it all done for you. With robo-investing services, like Wealthify, you can open a SIPP in just a few taps. You don’t need much experience to start your SIPP journey since we’ll do the hard work for you, from building your pension to adjusting your plan, when needed, to keep it on track. We’ll also add the government’s top up to your Wealthify Pension and invest it for you.


Not consolidating your pensions
On average, people will have 12 jobs in their lifetime and they’ll likely have as many pension pots floating around4. However, most people forget about them. About 1.6 million pensions pots have been ‘lost’ in the UK – all together that’s £19.4 billion which is being left behind5! If you’ve had many workplace pensions, it could be worth locating them and combining them in one place, that way, it’ll be easier to keep track of them. Before you consolidate your pensions, make sure you shop around and compare the different fees taken by providers. Fees and charges will ultimately eat into your potential returns, and they may make a difference to how much you’ll get in retirement. So, it’s important to keep costs to a minimum. But don’t just look at fees and charges. Things, like customer service and investment strategies also matter and should be considered when looking for a new provider.

Transferring your pension has never been easier thanks to online investing services, like Wealthify. All you need to do is choose how much you want to transfer and the risk level that suits you. You’ll also need to complete the official Pensions Form to make the move successful. If you want to learn more about bringing your pensions to Wealthify, please visit our transfer page: https://www.wealthify.com/pension-transfer.

Want to know how much money you could have when you retire? Our pension calculator can help give you a good idea of what your yearly or monthly income could be. Why not have a play with the figures to see how much of an impact little changes can make? Try it here: www.wealthify.com/pension-calculator


1: https://www.gov.uk/new-state-pension/what-youll-get

2: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be£ 43,905. If markets perform better, your return could be £121,496. Values correct as of 02/06/20.

3: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be£ 48,295. If markets perform better, your return could be £133,646. Values correct as of 02/06/20.

4: https://www.thebalancecareers.com/how-often-do-people-change-jobs-2060467

5: https://www.theguardian.com/money/2019/may/12/lost-pension-funds-pots-auto-enrol-track-trace


The tax treatment depends on your individual circumstances and may be subject to change in the future.


Please remember the value of your investments can go down as well as up, and you could get back less than invested.

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