Common Financial Mistakes Made in Retirement

In my line of work, as an independent financial advisor (IFA), I have the pleasure of speaking to people at all stages of their financial life. Some are just beginning to consider major decisions like pensions and investment, while others have already retired but are finding they are struggling to make their money stretch as far as they were hoping.

There are many reasons why people struggle financially in retirement, and we have found that retirees are often still making financial mistakes well into their 60s, 70s and 80s. Here’s my list of some of the common mistakes to avoid in retirement.

1. Withdrawing your pension into a bank account

Citizens Advice has found that some 30 per cent of those who decide to cash out their pension early are then paying it straight into a regular bank account with little to no interest paid on it.

We now enjoy a few more freedoms to decide when to withdraw our pension cash, but this doesn’t mean that withdrawing the money early in your retirement is necessarily the right thing to do – especially if it’s going to languish in an account that pays less than inflation.

Remember, you can withdraw 25 per cent of your pension pot as a tax-free lump sum, but once that’s gone, it’s gone. You’ll then be limited to your personal allowance only, or you’ll be paying tax on the rest. If the tax-free lump sum amount is forming part of your retirement plan, it might be best to leave it where it is for a little longer.

It is important to remember that investments do not include the same security of capital which is afforded with a deposit account. Therefore, if you have any concerns regarding the level of investment risk your pension funds are exposed to, please contact us for a review.

2. Spending too much too soon

Retirement, for most, is a marathon, not a race. You could easily spend two or three decades in retirement. Withdrawing your tax-free lump sum to help your son or daughter onto the housing ladder might seem like the best use of your cash as soon as you can access it. However, what happens ten or 15 years down the line when your money runs out?

At the same time, we understand that it can sometimes be rewarding to spend more during the early years of your retirement when you can enjoy travelling more easily, for example.

Working with an IFA can help you get the balance right by planning out your retirement clearly with your personal hopes and dreams for retirement at the centre of it all.

3. Failing to review your pension investments regularly

Even before you’ve retired, it makes sense to regularly review where your pension is invested and obtain a clear idea of your options. Simply investing your pension and then forgetting all about it is a common mistake among working-age people. However, once you’re retired, it also pays to keep abreast of new investment and savings opportunities by consulting with an IFA.

Remember, retirement is a time for a little R&R, but it’s also a surprisingly expensive period of your life, especially if you want to continue to live life to the full. Therefore, seeking professional advice even after you’ve retired will ensure you don’t suffer unnecessarily.


Important note: Pension income could be affected by interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

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