Your 50s may be your last decade to save for retirement. Unfortunately, it is also the time when most people make their biggest money mistakes. Moreover, any financial blunders committed now are tougher to recover from, and could have major consequences for your retirement.
As the adage goes: With age comes wisdom – but it also comes with a more complicated lifestyle. When you reach your 50s, you are expected to be in your prime – a time when you are supposed to be financially savvy and capable of making sound decisions. But from what I see as a financial planner too often this is not the case.
To help you make the most of your 50s, here are the 10 biggest money mistakes to avoid:
- Overspending. You will reach your peak earning potential in your 40s, and this will continue into your 50s. At this point you get bigger pay cheques, which translate to a host of good things; but greater income also tends to increase the likelihood of lifestyle inflation. Suddenly life becomes a lot busier, and it becomes easier to get complacent and let expenses spiral out of control.
- Trying to time the market. History has proven that it’s impossible to consistently time the market. Even the professionals don’t get it right and they have access to more data and research than the average investor could dream of. Time in the market is more important than timing the market. Consistently contributing to your savings or superannuation, picking a strategy and sticking to it over the long term is the most predictable way to grow your wealth.
- Reacting to the financial media. Let’s make one thing clear, the financial press are interested in one thing and that is to provide entertainment in order to attract more viewers or readers. They do not know your individual circumstances, nor are they obliged to act in your best interest. Often the information the present is sensationalised in an attempt to sell more papers, magazines or subscriptions. The media promotes a focus on the short term, rather than long term investing. WHY? Long term investing, much like watching paint dry is boring and doesn’t sell papers or magazines. It does produce consistent and predictable returns though…………
- Not understanding insurance. Think about it: When was the last time you reassessed the value of your home and contents to adjust your policy?
If you can barely remember, then now is the perfect time to do so.
As your cash flow increases, and as inflation raises the cost of replacing assets, you may realise that the policy you took out a decade ago has left you under-insured. The same goes for life insurance, so make sure it is able to keep up with your expenses.
- Planning to rely on the government pension. The age pension may be able to provide for your basic needs during retirement, but don’t expect to live comfortably. Bear in mind that it is never too late to take control of your financial future by saving and investing a substantial sum. As Albert Einstein stated, “Compound interest is the eighth wonder of the world.”
It’s time to visualise and plan for the lifestyle you want during retirement, and start working towards it.
- Not diversifying your investments. It’s rarely a good idea to have all your all your eggs in one basket. Having a broad portfolio of stocks, bonds, and other growth assets, is less risky and more likely to yield consistent and satisfactory returns over time.
- Panicking when stocks fall. It is horrible to see your retirement portfolio plummet by 30 percent or more. But don’t commit the mistake that many did back in 2009. Investors sold their stocks out of fear after a decline in value, only to miss out on the market’s recovery. Stay calm, concentrate on the long term, and heed Warren Buffett’s advice: “Be fearful when others are greedy, and greedy when others are fearful.”
- Being too conservative or too aggressive with your portfolio. Once you reach your 50s it is quite likely that you still have 25 to 35 years of life ahead of you, including 15 years before retirement. It therefore makes sense to have a more conservative portfolio compared to someone in their 30s. However, consider the fact that in the history of the ASX, there has never been a 20-year period of negative returns; whereas money consistently loses its value due to inflation. Make smart financial decisions and don’t hold your wealth in fixed interest investments. Consider your investment horizon and determine the asset allocation that best suits you.On the other hand, it is not advisable to be too aggressive by going for high risk investments without seeking expert advice beforehand. Just keep it simple, diversify your investments, and make investment choices based on your comfort level with risk. This is where the help of a financial adviser can come in handy.
- Putting your children’s education ahead of your retirement. Helping your kids financially through private school and university could possibly give them a head start in life. If you can afford it, then good for you. But don’t neglect your own future. If you don’t set aside enough for your retirement, you’ll only find it more difficult to catch up and make the necessary adjustments. Your retirement should be your top priority.
- Not taking care of your health. This holds true for any age, but people in their 50s tend to get busy with their careers and family, at the expense of their health. Neglecting your health canlead to numerous medical expenses in your retirement, not to mention the effect on your lifestyle and happiness. Remember that medical expenses increase exponentially with age.Recent Medicare data revealed that, of all the healthcare expenses in your lifetime, about 30 percent will be incurred in your final six months. Minimise future medical bills by investing in a healthy lifestyle which involves proper diet and exercise.
At this stage in your life you should be looking to maximise your retirement savings. It’s not too late to start. It takes a lot of planning to get your financial house in order.It will help a great deal if you work with a team of professionals so it becomes easier for you to navigate your way towards financial freedom.
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At Assure Wealth we specialise in helping busy, successful families structure their finances to achieve greater wealth and financial peace of mind.
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