Retirement should be the best stage of life – a time when you can enjoy life to the max, free of worry. However, many retirees make mistakes with managing their money which mean they aren’t able to achieve the kind of retirement they deserve. If you want the last thirty or so years to be the most extraordinary time of your life, here are the key mistakes to avoid.

1. Failure to plan.

Time goes very quickly in retirement – just ask any retiree! Planning your life is a bit like planning a journey. Firstly, you need to know where you are starting from. That means making an assessment of financial resources – your assets (home and investments) and your income (pensions and investment income). Secondly, you need to know where you are heading, that is, what your goals are. Without goals, it is difficult to prioritise how best to make use of your financial resources. If your resources are limited, you want to make sure they are used on the things that are most important to you rather than frittered away through careless spending. It is also important to make the most of the earlier years of your retirement before the onset of any health issues.

It’s hard to make a plan for the next thirty years but it’s quite easy to make a plan for the next five years with reasonable certainty. Set broad goals for ten years after that and also think about where you might spend the last years of your life.

3. Mistake Number Three - Investing too conservatively.

Investing all your money conservatively for 20-30 years is a good way to run out of money more quickly than you need to. Investment strategies should be linked to your investment time frame – that is, the time frame in which you wish to spend your investment capital (not the income from the capital). It is essential that retirees have some exposure to growth assets (shares and property) in their investment portfolios. This can be done safely through holding a well-diversified portfolio. Always hold enough cash on hand to cover short term expenses so that if there is a market downturn, you don’t need to sell investments at a loss. Over time, markets move through cycles but with an upward trend, so having cash on hand will allow you to ride out the ups and downs.

4. Living off investment income and not capital.

People are living longer and investment returns and low, so it is increasingly difficult to eke out a living in retirement by using the income from investments. Investing for income is also likely to lead to lower returns and less tax efficiency. There are four sources of cash that can be used to fund your retirement – interest, dividends, capital gains and capital. Unless you plan to leave behind a large inheritance for your children, you should use all these sources. The trick is to be able to run down your capital at a ‘Goldilocks’ rate – not too fast and not too slow, but just right. To avoid running out of money before you run out of life, plan on living a long time, as life expectancy is increasing.