5 Retirement Planning Mistakes To Avoid

Feb 8, 2024 | Money

Better than any other financial advice that a person can give you is to save for your retirement. Not only is this the only way to ensure that you have financial security and stability for your golden years, but retirement planning and saving can also provide you with an investment opportunity and the advantage of tax benefits. 

It therefore (almost) goes without saying that you have to be very careful when preparing for your retirement. The thing is, if you’re going to put yourself in a position to comfortably retire, you need to be aware of the key trends shaping the retirement fund industry right now and if these could potentially affect you. 

Funds And Employers Expected To Play A Bigger Role 

There’s been a growing need in recent years from employees who want options to be recommended to them. A 2017 survey conducted by Old Mutual Corporate found that 38% of employees indicated this need in 2013, which jumped to 45% in 2016. A few years later, and employees who haven’t yet reached retirement age are opting for the default option presented to them. 

It’s clear that retirement funds and employers are expected to provide this guidance, and therefore need to take a more active role in assisting employees make the right choice for their retirement needs.  

Many Expected To Cash In 

For the most part, people know that cashing in a provident or pension fund when changing jobs is extremely damaging to their long-term financial wellbeing. However, the temptation to get rid of debt, invest in other plans, or use the money for personal reasons can be too great. Even as far back as the 2017 Old Mutual Corporate survey, it was discovered that around 35% of employees would withdraw some of their money, while almost 50% would cash it all in. 

Now, it’s expected that many more could cash in their retirement savings if they change jobs or fall on hard times.  

The Proposed ‘Two-Pot’ System 

It’s not surprising, given what we know about the expected ‘cash in’ behaviour, that the Government’s proposed ‘two-post’ retirement is set to take effect in 2024. This system requires you to put one-third of your retirement contributions into a savings pot. The pot allows early access, but two-thirds is preserved over the long-term.  

Essentially, this system is an attempt to balance the need for people to survive financially in the now by preventing them from taking out expensive short-term loans – as well as after retirement. While this sounds brilliantly beneficial, you need to keep in mind that any withdrawals are fully taxed and will erode your capital. 

The Digitisation Of The Retirement Sector 

Much like the rest of the world, the retirement fund sector is rapidly digitising. Technology advancements are set to increase awareness (particularly among the younger generations) by helping them understand the retirement income they’re likely to receive. Added to that, digital tools will increase access to retirement options, allow members to monitor their funds’ performance and gain greater insights. 

Let’s not forget the advisors, who will be more easily able to offer tailored investment strategies based on individual preferences and risk profiles.  

More Personalisation in Your Retirement Plan 

It used to be that we would be ‘locked’ into a retirement income that was chosen for us. But that’s no longer the case. In fact, there are increasingly more annuity options available, as well as a push towards more customisable options.  

As this shift away from traditional pensions continues, there are more opportunities to tailor your investments to meet your individual needs. This will ensure that everyone has access to the resources they need in order to plan for an optimal retirement. 

The key is to make sure that you get the right advice so that you can make a choice that works for you.   

Feeling informed?  

We’ve seen that, according to the South African Treasury, only 6 out of every 100 South Africans will be able to retire comfortably, which is concerning for the remaining 94. 

It’s clear that the decisions you take now, in part based on these trends, will affect your life for years to come, and we trust that this information helps you plan more intentionally for your retirement.  

Don’t forget that AA Inform is home to a range of useful tools and resources, including our access to free property valuation reports, multiple car and home insurance quotes through the AA Insurance Supermarket, and much more. 

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