Your retirement should be when you have plenty of free time and money to enjoy life. Unfortunately, many of us forget the saving money part. Here are 3 common traps that prevent people from enjoying retirement to its fullest.
1. You Don’t Have a Budget
It’s very important to know not only how much money you currently have but also how much money you will receive once you retire. The first step is to check how much State Pension you might receive.
Your State Pension is based on your National Insurance contributions. Your age and gender decide when you can begin taking State Pension money. You can check your estimated State Pension by going to the Gov.UK Website.
2. You are Paying Too Much Investment Fees
Your State Pension will likely not be enough to pay for all retirement expenses. You should also make sure to have investments in things like stocks and bonds. Investment fees of 1-2% don’t seem like a lot but they add up. If you invested $100,000 today with a 5% annual return and 1% in annual fees, you would wind up with about $320,000 in 30 years … but only $240,000 or so if you paid 2% in annual fees.
The best way to reduce investment fees is by investing in index funds. Index funds track the top companies in the world. They typically have much lower fees than active managed mutual funds because there is no money-manager to pay.
I was so mad when I found out about the investment fees I was paying. I called my financial guy the next day and let him have it. I yelled “why are you screwing me like this?” He was speechless. I guess he didn’t expect me to catch onto his game.
FINRA has a great tool to check how much mutual fund fees are eating into your returns. A good rule of thumb is to find index/mutual funds with expense rates lower than .50%.
3. Your House Isn’t Worth As Much as You Owe On It
Hundreds of thousands of people in the UK are underwater on their mortgage. The Financial Crisis showed us the pain this can cause homeowners.
Don’t sell your home if you find yourself underwater on your home. Use any savings you might have to pay off your home. You might even consider renting out a spare bedroom to earn some extra income.
There are resources for people in financial need. If you don’t know how to start making payments, reach out to the Citizen’s Advice Bureau. It is a network of 329 UK charities. They provide free confidential financial advice to all in need.