Deciding what you want to do after you retire is an extremely important step in your money management. It’s also extremely personal, meaning no one but you can make the final decision. That doesn’t mean you can’t learn from others’ mistakes though...
Here are five mistakes to avoid making with your pension.
Starting too late
If you haven’t given much thought to your pension yet, we recommend creating a financial plan. Work out your current financial situation - your income, expenses, and any larger debts or loans you need to pay off. Then, think about what you’ve already got in place for your pension, for example, workplace pensions from former jobs.
Relying on one source of income
Whether you’re planning to live off of your pension, invest in property, or continue working, make sure that you’ve got multiple sources of income. It doesn’t matter how much you’ve got saved for your pension, if unexpected circumstances hit and this money disappears, you need to have a back-up plan in place.
What about passive income?
Passive income is effectively money that you don’t directly ‘work’ to make. For example, if you publish a book, and continue to receive income from sales for decades to come, you’re earning passive income.
This is a great option for earning during your retirement, because it means you can put the work in today, and reap the rewards for years to come.
Not making the most of your savings
You don’t need to be rich to save money. It’s better to put a little bit of money into a savings account each month than none at all, and now, with automated transfers, you don’t even need to think about it. Then, if the opportunity arises through a new job or promotion, you can boost your pot with a one-off payment.
Passive income, as we mentioned above, is a great source of retirement income, and this is also a possibility for your savings too. How? By using a portion of your savings to invest. Read more about this here.
Ignoring the gender gap
In 2020, the UK’s average pension gender gap was 38%. Given that women (on average) live longer and earn less than men, this huge difference is a really serious issue for your pension.
One way to stay aware of the pension gender gap is in your workplace pensions. Since women are more likely to take career breaks than men, you need to be aware of how time away from work will affect your pension. Talk to your HR department about your pension, and see if there are ways you can prevent any long term losses. This is also a great subject to bring to a financial coach or advisor.
Making someone else's plans
We’re lucky enough to have endless sources of financial advice, always just a search away. But what works for one person might not be right for you. Maybe you’ve always dreamed of moving closer to family, but it seems easier to keep the house you currently have. By planning your pension in advance, and thinking through what you want your future to look like, you have more freedom to align your reality with your goals.