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Avoid These 5 Mistakes
 
 
 

Avoid These 5 Mistakes

 
 

Research by Alexander Forbes shows that the average South African retiree is expected to have generated savings that will purchase a pension of only 30 percent of the salary they were earning before retirement.

"These statistics are a cause for concern. South African citizens are either not informed, not getting the right advice or are constantly doing something wrong," says Linda Sherlock, Head of Advisory, Alexander Forbes Retail Holdings.

According to Sherlock, people should look out for the following mistakes when planning for retirement:

1. Starting to save for retirement too late



"These daysí young people are more concerned about paying off debt and making ends meet than actually saving for their retirement. This is understandable, but contributions made earlier on in life often have a longer time to multiply due to the power of compound interest," advises Sherlock.

Click here to read "Easy route to a million" to learn more about compound interest and how it will make you rich.


2. Spending retirement benefits when you change jobs



When changing jobs you should place your retirement benefits in other retirement funding vehicles so that the lump sum saved and invested to date is not only untouched but can also continue to grow through appropriate exposure to the investment markets.

For example, says Sherlock, "You can move your fund to your new employerís fund, a preservation fund or a retirement annuity fund."

Not preserving your retirement benefits is a surefire way to one day be old and poor. Need more proof? Read "How to be old and poor".

3. Investing incorrectly during your working years



A common mistake people make is to invest too conservatively for retirement. "Itís true that, over the short term, cash can be a safe investment. However, you must remember that over the long term cash returns have not performed better than shares and they do not beat inflation by much," adds Sherlock.

Investing too heavily in the money market if you're a long-term investor is not safe at all. In fact, it's about as risky as driving blindfolded after a bottle of tequila. Read "What is risk?" to understand why.

4. Timing the stock market



Many people think they can predict what will happen with the stock market and change investments in line with their predictions.

"Research shows that this very seldom works and, in fact, timing the markets actually very often ends up destroying your retirement savings," warns Sherlock.

Read "The myth of market timing" to understand why this is so.

5. Not taking expert advice



"To avoid making these costly mistakes, itís better to start seeing a financial adviser during your working life and continue to get professional advice after retirement," concludes Sherlock.

 
 
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