5 retirement income mistakes that could tank your pension – how to reduce risk

State pension: Expert on difference between ‘old’ and ‘new’

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From miscalculations to forgetting about inflation, there is a lot that can go wrong when retirement planning, especially if one doesn’t have experts on their side. Express.co.uk has compiled a list of some common mistakes from a range of experts to help savers ensure they aren’t missing out or tripping up on their pension pots accidentally.

How much to save

Experts have warned that oversaving or underspending in retirement can hurt one’s lifestyle just as much as not having enough funds.

Financial consultants at Frazer James recommend saving 20-25 times one’s expected retirement expenses.

Essentially, expecting roughly £30,000 in annual expenses would mean one needs to save £600,000 to £750,000 for retirement. 

Additionally, if one plans to retire early they should add an additional £30,000 for each year they plan to not work before the general retirement age. 

Calculating one’s unique goal is key to knowing whether they are on track for retirement, need to up their contributions or can scale back the savings a bit. 

Don’t forget inflation

One vital insight of retirement planning that many forget is inflation, interest and cost of living variables. 

Not taking inflation alone into account can see one retiring with only a third of the pension pot value they wanted, regardless of the number of digits they have saved. 

Brewin Dolphin experts suggested that savers should have their savings, investments and income growing at the same rate as inflation if they want it to retain its true value. 

Withdrawing correctly

If one makes it to retirement with plenty of savings on hand they may face an entirely different set of barriers: knowing when and how to best withdraw and use their money. 

Many people struggle a lot more with spending their retirement savings than they did putting money away for it, but underspending can greatly affect the lifestyle one lives and is often unnecessary. 

Brewin Dolphin experts recommend that retirees have a pool of cash for any large, planned one-off expenses as well as an emergency fund which should consist of six months’ worth of essential spending. 

Having these funds in easy access accounts or cash can help reduce the impact of financial emergencies or purchases on ones’ investments. 

Not watching retirement investments

One of the biggest assumptions is that one can put aside money into a retirement investment and leave it until they need to retire. 

However, like all investments, they have capital at risk and investors are cautioned to not invest more than they can afford to lose. 

Investors should also be keeping a keen eye on their investments and ensure that their portfolio is diversified to the point that they are comfortable with. 

Forbes noted that correctly diversifying a portfolio “can help smooth out investment returns over the long term”, also adding that diversification is in essence not putting all of one’s eggs in a single basket.

Retirement planning and saving requires a fair amount of mathematical and financial knowledge, yet even if one can calculate everything correctly there’s still the odd chance that their plans are not optimised for the retirement they want.

Additionally, it’s impossible to know exactly how long one will live for, and as a consequence, much they need to save for retirement, but industry rules of thumb have been created to give the best possible chance of getting it right.

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