17 August 2021

The Five Worst Mistakes Retirees Make

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.

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2. Having too much money in property

It’s great to have a beautiful home to live in when you retire, but if you have no money in the bank or other investments you might find yourself living a miserable life. Try and have at least half the value of your home in other investments to avoid being asset rich and cash poor. This might mean selling your home at some point in retirement to free up funds, or taking out a reverse mortgage.


Downsizing your home doesn’t always leave you with cash in your hand, especially if you downsize to a newer, low maintenance home. You may need to move to a cheaper area to free up money. If you own investment properties, think about how and when you might want to use the money tied up in those properties, unless you plan to leave them to your children.

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.

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5. Underspending.

If only we knew how long we were going to live – it would make retirement planning so much easier! There are other uncertainties in retirement – such as how much money we will actually need to live on, and what investment returns will be. All this uncertainty means that people spend their money cautiously – too cautiously. Underspending can mean going without unnecessarily. Underspending can be avoided by taking a planned approach to running down capital. Start by assuming you will live a long time, then work out a pathway for planned spending. This can be reviewed annually as plans change and as retirement unfolds.

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Written by:

Liz Koh

Liz Koh is a money expert who specialises in retirement planning. The advice given here is general and does not constitute specific advice to any person.

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