How ignorance about money can hurt your retirement

Couple meeting with a financial advisor

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Good or bad, you need to know what your financial situation is going to be in retirement. That came home to me after we had spent an hour or so with our financial advisor.

Two things became clear to us: Our estimated income in retirement and, importantly, the understanding that with that income we would be OK financially. It wouldn’t be a fancy retirement, but we knew we’d do far better than merely survive.

If that changes I’ll let you know so you can send food parcels—or, better, money in paper bags.

Too many are ignorant . . .

. . . about what their financial state will be in retirement. Research in England a few years back found that:

  • 1 in 3 Britons see no value in seeking financial advice
  • 1 in 10 say they won’t talk to others about their financial affairs because this is a private matter
  • 44 per cent felt they didn’t need to consult a financial advisor
  • 36 per cent didn’t know about financial advisors
  • those with household incomes under £30,000 are less likely to seek advice

The statistics will change from place to place, but there’s too much ignorance about what’s needed.

How financial advice helps

It depends on what stage of retirement preparation you’re at as to how financial advice can help most. If you’re a decade or two away from retirement, it can help you work out a long-term plan to set yourself up to be in a strong financial position at retirement.

Checking in with your financial advisor now and again can also help you know if you’re on the right track or not.

If you’re close to retirement, it’s important to really understand your options. The government rewards those who set their finances up in the right way. Our advisor put it this way, ‘Often it’s less about investment returns and more about making sure that things are done in the correct way so that you can optimise your overall position.’

One of our regrets is that we didn’t seek advice earlier. Back then we didn’t think the cost was worth the outcome. It is.

Not sure how to find a financial advisor? This post may help.

Your bottom line has a bottom-line message

Like I said, we were pleased that our bottom line had stayed the same because we had plans for our retirement that fitted what we thought we had. Understanding what your bottom line is, helps you plan your retirement because you are dealing with realities. It lets you know what kind of lifestyle you can afford.

In commenting on the British report, Andrew Tully, pensions technical director at MGM Advantage, said, ‘If people do not seek expert help when considering their options for retirement, we could see many people making poor choices, such as paying too much tax or investing in poor value solutions.’

He’s pushing for a system of ‘soft compulsion’ to be introduced that prompts people to seek guidance with their money, ‘to ensure most people have a basic level of understanding of the myriad of options which are likely to become available before making any decisions’.

The good news for Australians is that, according to another report that came out about the same time, while there hadn’t been any significant increase in financial preparedness for retirement, more are now prepared to seek financial advice.

Ignorance about your financial situation as you face retirement is not bliss. You need to know your realities to plan well for the future.

Bruce Manners: the author of Retirement Ready?, Refusing to Retire, and founder of RetireNotes.com

Category: Finances, Planning

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