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Six decisions that could ruin your retirement

I’ve been trying to think of things you might associate with the number six. Six eggs. Six pack – ha I wish! Six geese a laying. Six of one and half a dozen of the other. Some readers, I’m sure, will remember spending a sixpence in their younger years, otherwise known as a ‘tanner’. Given that’s the number of the now, we should all try and remember it somehow.

I wouldn’t want any readers to inadvertently breach the new rule of six and bag a £100 fine. That would be a terrible move for the health of your finances and the nation. Even if you think that’s a price worth paying to visit grandma with the kids, or the local rave if that’s your thing, I wouldn’t recommend it. So, in order to keep the number firmly on your mind, here are six things to (potentially) avoid if you want to maintain healthy finances for a lifetime…

1. Slacking on saving

Most people tell me that they have managed to save more recently, perhaps more than ever. We obviously haven’t had as much to spend our money on! Holidays are a risk, there was no point in new summer clothes and getting out and about to shop or socialise has been much more of a chore. But as the new normal starts to materialise, we are all going to be compelled to loosen the purse strings a little.

It doesn’t matter how rich you are, your fear of missing out on the best phone, best car, best clothes and other important (?) luxuries can have a serious affect on financial planning for the future. You may have heard the wise Chinese proverb that says “The best time to plant a tree was 20 years ago. The second-best time is now.” Well that pretty much applies to saving too. While the best time to start saving may have been 20 years ago, don’t panic. There’s plenty of time to control the FOMO and direct some of your cash into a long term savings plan.

I’m all for having a great lifestyle now, but as humans we are compelled to black out the future. Thinking of today and putting off until tomorrow creates one thing – uncertainty. It’s my job to remove it. So read on…

2. Prioritising other people

Only you are responsible for your financial future. That’s it. Fact. There are fewer final salary pension schemes these days. The state pension gets further into the future by the year, and if you haven’t already, I advise you to check when you will get yours here. To top it all off, your company pension usually needs to be invested with care and diligence in order for it to provide you with the retirement you deserve. That’s because it’s got risk attached to it and guess what? The risk is yours.

Why then do people often set priorities that are the total opposite of good financial planning? I often see people paying tens of thousands for children’s education, weddings, house deposits, cars and so on. Are you creating a future problem?! Yes, if you are forced to move in with those kids to survive in later life or if your holidays move from Barbados to Blackpool!

I’m not saying that you shouldn’t help out the kids, far from it, but the ‘bank of mum and dad’ needs a prudent manager. One that can put the outlay into the context of your wider financial planning, make sure it’s affordable and won’t affect your future. There are ways to fund education, such as student loans. There are government incentives to fund housing, such as help to buy. Then there are of course the more traditional ways to fund this stuff like good old fashioned responsible saving… theirs I mean. These options can all be exhausted before your nest egg is.

3. Declining to defend

“It will never happen to me.” Well maybe it won’t, but as we are all too aware these days, it can and will. No-one knows how or when. That’s why you need to consider two key things that can soften the blow when disaster strikes.

Firstly, you need an emergency fund. A few months expenditure in a relatively accessible place that can help you deal with a disaster. If you lose your job this will give you some breathing space. If your boiler packs in, you need the money to sort it.

Secondly, you should consider insurance to cover anything that can’t be paid for with your emergency funds. If you will eat into your retirement savings to fund a disaster, such as loss of income or in the worst case due to a death in the family, then it should be covered with insurance. Why? Because if it isn’t covered and the worst happens your retirement could end up looking much less rosy.

Yes you will pay a monthly premium and it’s a cost. Put that cost into the bigger picture and in the majority of cases, if something does go wrong, it will be a much lower cost. You don’t want to affect your retirement through spending your nest egg. You shouldn’t be forced to damage your health further by the need to work to pay the mortgage. Cover it.

4. Selling not staying

What is a ‘paper loss’? Let me explain. Let’s say you buy a house for £300K and then 6 months later it’s valued at £250K. Have you lost £50K? No. You still have the house and the loss is on paper. You’ve only made a loss if you sell the house!

This also applies to investments. Often when investments fall in value people panic, their gut instinct tells them to sell and without someone (like me) to steady their nerves their paper loss turns into a real one. What’s more, they typically then try to time the markets, miss out on gains and are left in a much worse position. Do this a few times in your investing life and your financial plan will catch more than a cold! You can read more in my post on timing the investments markets here.

The main thing to remember is that you should only be selling investments to create cash that you will absolutely need in the short term. Otherwise sit tight and do absolutely nothing!

5. Living too much life

We all become accustomed to a lifestyle. It’s inevitable that as we hopefully increase our income we will use some of that to enjoy the finer things in life. However, once you’ve got this lifestyle you are going to want it to continue, for life.

The problem is that one day you are going to want (or need) to slow down a bit. Less work means a loss in income and that needs to be replaced. That’s going to have to come from savings or pensions, both of which need to be contributed to now.

Some of you may have heard of a famous investor, the one and only Mr Warren Buffet. His quotes get banded about quite often but always aid good financial planning! I make no apologies for highlighting the following two…

“Do not save what is left after spending; instead spend what is left after saving.”

“Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date.”

Thanks Warren. Enough said.

6. Passing on the professionals

This can be a big problem. There’s a reason why we use professionals to do jobs we think we might be able to do ourselves. My oven recently decided to start indiscriminately burning everything to a crisp – so I bought a new one. It was lockdown, it could not be fitted by the well known appliance firm for health reasons and to top it all off they would only leave it at the bottom of the drive. “OK Chris” I said to myself, with the oven up the drive and steps, two coffees down and much head scratching later, “you can do this.”

I enthusiastically began work removing the old oven. Three hours and many expletives later I had finished the whole task.  Along the way there was an argument with my other half re positioning, the unnecessary removing and then refitting of the cabinet housing and the dislodging of the gas pipe to the hob. After the final screw had been turned and the oven was proudly in place, I found the protective plate, to be fitted to the electrics at the back, right there on the kitchen side. This was as well as all the other minor issues, you know the ones, “where is that screw?”. You get my point. I’m a great financial planner but I’m terrible at fitting ovens. This would have been a safer and shorter job with a pro.

A less stressful alternative…

Many people go it alone when it comes to financial planning, but often they don’t know what they don’t know. As a result, they can’t fix what they don’t see. Like the oven debacle, it could cause much stress, mistakes and in the case of financial planning , retirement doom. Luckily I could hear and smell the gas. You can’t hear and smell lost investment returns.

In client conversations I often uncover blind spots in estate planning, tax and investment strategies that were hiding in plain view. That’s as well as acting as a great sounding board for all of the financial decisions that get thrown at me, whilst always making very clear the effects of these on the longer term plan.

A good financial planner can serve as a guide to help you see your blind spots and help you avoid sabotaging your financial future. It’s about helping you make the right decisions and avoid costly mistakes. If you’re thinking that’s a great idea, I know a good one.

Thanks for reading.

Until next time…

Chris @ Agile