Myths about retirement financial planning

Getting ready for retirement is an important first step before actually retiring, however, some people try to skip the financial planning part of getting ready for retirement.

Key points:

• Being a good saver doesn’t mean you don’t need a financial plan to plan for the future
• It is never too early to start financially planning for your retirement
• A financial advisor can create a tailored plan for you that fits your goals and wishes for retirement

Having all your finances in order and an appropriate financial plan in place is a really important component to your retirement, and sometimes the best person to talk to is a financial expert.

If your financial plan is not in place, your money may not last the distance after a few years in retirement.

Organising a financial plan with the help of a financial advisor can assist you in foolproofing your retirement.

We talked to Rosie Bouton, Principal Financial Planner and Aged Care Specialist at We Plan Financial, to debunk five common myths about financial planning.

Myth one: I am a good saver, I don’t need to plan

Being a good saver is a good trait to have, however, that won’t prepare you for your future in retirement.

Ms Bouton says, “Having a good financial plan can help you achieve your personal goals and objectives. If your only goal is to accumulate X amount of dollars in your bank account, then perhaps financial advice is not for you.

“However, most people have various competing and conflicting goals, such as ‘I want to pay off my debt’, ‘I want to go on a yearly holiday’, ‘I want to retire early on a comfortable level of income’… An adviser will help you prioritise your goals in order of importance and implement strategies to make your income go further and maximise your accumulated funds.”

Those goals could include saving up for a caravan or wanting to know that your retirement savings will allow you to live comfortably for the next 20 years.

Finances can become more complicated as you age, especially if you haven’t even considered the possibility of future aged care costs.

A solid, well organised financial plan doesn’t only mean safety, but also means you are setting goals and achieving them.

Ms Bouton adds that good savers are ideal candidates to receive financial advice because having a good understanding of your budget and cash flow can be vital to the success of any financial planning strategy.

Myth two: I’m years off from retirement

Any financial expert will tell you, the sooner the better. If you are financially planning ahead of your retirement, this means you have more time to get all of your ducks in a row.

More time to build your super, invest in different areas to grow your savings, implement financial growth strategies, and to pay off any mortgages and loans.

If you are entering retirement with less super than you would like, poor investment growth, or large loans still to be paid off, then you may run out of money sooner and end up on the Age Pension.

When Ms Bouton previously worked at Services Australia (Centrelink), she often saw many people a few months out from the retirement age worrying that they would not have enough superannuation to last them throughout retirement.

Ms Bouton says there are three facts people should remember:

• Four in five retirees over the Age Pension age get a full or part pension
• The biggest financial concern for this age group is “running out of money”
• Most people live longer than they expect

“Retirement is often the first time since entering the workforce where people have ample leisure time to pursue interests, spend time with family, and travel,” explains Ms Bouton.

“Therefore, given the choice, most people would rather have the means to be self-funded in retirement, or not to worry about outliving your money or jumping through administrative loops with Services Australia.

“When people start planning for retirement earlier, even if it’s only for a few years, they can really make a big difference to their superannuation balance and the chance to live a long and comfortable lifestyle in retirement, free of financial stress.”

You want to be in the best position possible so that your retirement savings can stretch 10 – 20 years in the future with the ability to cover future care needs when you need it.

This means you can also prepare yourself for the lifestyle you want to lead in retirement no matter what that looks like.

Myth three: I can organise my financial plan myself

While you may be able to financially plan yourself, there are many more benefits to utilising a financial advisor, says Ms Bouton. She outlines the following benefits for those seeking a financial advisor, such as:

• Education and empowerment to make wise financial decisions
• Introduction to good ideas that will help you achieve your financial and life goals
• Keep you on track financially and reprioritise goals when “life happens”
• Utilise strategies to improve your financial position by reducing debt, wealth creation, saving for retirement, and accessing benefits.
• Proactively identify financial risks and opportunities for you
• Provide clarity and transparency on benefits and risks involved with different financial strategies so you can make informed decisions
• Recommend products you might not find on your own
• Reading all the “fine print” on products and informing you of anything important
• Make sure your wealth accumulation strategies are protected
• Ensure you have adequate financial protection for you and your loved ones in the event of an injury, illness, or death

If you do a financial plan yourself, you are also more likely to miss out on benefits or tax cuts you are eligible for.

Financial advisors can take the emotion out of making big financial decisions and make sure you stay on track to reach your retirement goals.

Additionally, organising your own financial plan may leave you open to mistakes that you weren’t aware of, whereas a financial advisor can make sure that you have a sound financial plan in place.

Myth four: financial planning costs too much money

Ms Bouton says that the financial planning industry is heavily regulated to protect consumers and financial advisors are bound by the ‘Best Interest Duty’, which means an advisor has a duty to ensure a customer is in a better position than when they were before, inclusive of the advice fees paid.

“This serves as a safeguard for clients as the value of receiving advice should always exceed the cost,” explains Ms Bouton.

“Financial advisers are required to be transparent about their price structure and must seek your express written consent prior to charging any fees. They’ll let you know upfront approximately the benefits that you’ll acquire in exchange for the expenses that you are paying.”

In the long run, financial advisors are likely to save you money as they are aware of cost saving techniques, investment options, and budgeting strategies to help grow your savings for retirement.

It is a good idea to shop around and contact several financial advisors to find the best service for you and your circumstances.

Myth five: financial planners give generic advice

Licensed financial advisors are the only professionals who can provide a client with personal financial advice.

Under the Corporations Act 2001, ‘personal advice’ is defined as financial advice that considers a client’s objectives, financial situation, and needs. However, ‘general advice’ is not considered personal advice.

While some advisors may provide general advice on occasion, they are required by law to provide you with a general advice warning so there isn’t confusion and it is clear to you, the consumer, that this advice should not be acted upon unless you seek personal advice.

Every person’s circumstances and position is different, so you should be seeking out personal advice that suits you rather than act on general advice.

Ms Bouton says, “one of many benefits of the financial adviser/client relationship with a financial advisor is that they analyse your current position and discuss your goals and objectives with you.

“Then, and only then, are they able to tailor a solution that fits your individual needs. This process allows you to create your own financial road map which is unique to you.”

You can be assured that your financial plan will be far from generic and instead will be goal-orientated so you can live how you wish in retirement.

What myths do you want debunked about financial planning? Tell us in the comments below.