Pension planning: costly mistakes that could ruin your retirement

From obsessing about cash to not planning for upheaval, here are 10 common mistakes to avoid while saving for your retirement.

Retirement planning is generally not something we’re good at.

However, failing to plan properly is a costly mistake and given that we’re all living longer, it’s more important than ever we have money set aside for retirement.

Thankfully, there are some simple rules to follow when retirement planning and mistakes to avoid.

Here we’ve listed 10 of the most common retirement mistakes – how many are you guilty of?

1. Not keeping an eye on investment fees

When you pay into a pension, your pension provider isn't investing it out of the goodness of their heart.

The amount you pay in fees depends on lots of things, but generally speaking, you need to look out for annual costs, fees for leaving or transferring the pension, and you may even have to shell out for investment advice.

If you’re not sure what you’re paying this can be a nasty shock and can eat into your retirement pot.

Most fees will be shown as a percentage but even though this may seem like a small amount, over the length of your pension it could really add up.

When you compare providers' fees the difference might seem small, but the impact they have over the course of your retirement savings can be massive.

Make sure you keep them under control – read our roundup of the main fees to watch out for.

2. Not planning for life-changing events

If you’re married or in a civil partnership and you get divorced, each person in the couple usually receives a share of any existing pension.

This may happen in the form of a cash payout or a share of existing assets but it’s worth bearing in mind as it could reduce the overall amount you have in your savings pot – or depending on the outcome could boost your retirement slightly.

When you take out a pension, it’s usually possible to make a declaration as to who you would like the pension to go to in certain circumstances, including death.

This can be important if you get divorced regarding partners and children from previous marriages.

Therefore, if you don’t have anything like this, it’s worth contacting your pension provider to find out if it’s possible to set up so you’ll know exactly where the money is going.  

There are no guarantees when it comes to how much money you’ll get in your pension and this is especially the case if a couple only has one.

3. Underestimating how long you’ll live for  

One of the biggest reasons people aren’t saving enough for retirement is because it’s seen as such a long-term saving.

Many don’t realise how long they are expected to live and therefore there can be a risk their pension pot will run out.  

However, the precise age will vary depending on the person and therefore the average ages given won’t always be accurate.

Average figures don’t help because those who have more money set aside are generally likely to live longer.

And don’t even think of relying on the length of life of grandparents or parents: expectancy has been growing with each generation meaning there’s every chance you’re going to live far longer.

The best solution is to plan as though you’re going to live until 100. The idea isn’t as far-fetched as you might think.

4. Investing in the wrong things (or places)

Your age and the number of years you have left to retire will determine the risk you can take with your investments.

If you have a long time until you retire, you can afford to take more risks with your investments and investing in shares is likely to give you the best long-term returns.

While the closer you get to retirement, the more widely spread you’ll want your portfolio to be to minimise your exposure to risk.

Think of things like cash, fixed-interest bonds and property.

5. Assuming it’s too early to start

Many people see retirement as a long way off, yet one of the biggest mistakes people can make is putting off retirement planning.

In fact, the sooner you start saving and regularly reviewing your pension pot, the easier it will be in the long run.  

6. Forgetting to review your plans

Many things can affect your pension pot, both in your personal life and global events.

Therefore, while it’s not the most exciting thing to do, it’s important to review your pot. Aim to do so every six months to a year.

That way you can spot whether your portfolio needs any changes made.

7. Not taking advice

How much financial advice will cost you depends on your own circumstances.

However, even if you can’t get it for free, it’s definitely worth paying for.

Picking the wrong investments could make a big difference to your final pension pot and therefore seeking advice can help you make sure you’re on track to achieve your retirement goals and have enough to live off when you stop working.

8. Holding too much cash/being too defensive

In retirement, one of the most common errors people make is to be too risk-averse.

We’re not talking about putting all your money in the latest cryptocurrency or heading down to the nearest casino, but rather leaving at least some of your money invested.

The golden rule of investing is that you need to hold your money for at least five to 10 years to iron out short-term volatility

However, the average retiree currently lives well over a decade, so it’s not the most drastic suggestion.

Ultimately, you could argue that holding all your money in cash and savings is actually a risky strategy as it all but guarantees you’re going to lose money in real terms as inflation eats into your life savings.

As we’ve mentioned repeatedly before, just make sure to speak to an advisor before making any decisions.

9. Using your house as your pension

Many people think they can sell their home, move somewhere smaller and live off the profits in retirement.

However, as the pandemic highlighted, you really don't know what seismic events lie ahead that could massively reduce the value of your most-prized asset.

Added to this are the costs of selling a property and purchasing a new one so you may not make as much money as you think.

It is also worth saying that you are likely to have lived in your home for quite some time and by the time you come to retirement you may not want to leave it to go elsewhere.

10. Assuming the State Pension will cover you

So many people overestimate how much they will get from the State that we thought it worth highlighting in its own section.

While improvements have been made in recent years, a full State Pension is still worth £185.15 per week.

While this may cover most of your bills if you've paid off your home, it's unlikely to provide you with much else, so it is worth looking at how you can make extra provisions.

Make sure you contribute to a private pension to ensure you have a more comfortable retirement.

*This article contains affiliate links, which means we may receive a commission on any sales of products or services we write about. This article was written completely independently.