9 things in life that could stop you having enough to retire

41% of investors around the world fear they won’t have enough saved to fund their retirement, the Schroders Global Investors Survey 2020 reports.

If you’re fortunate, you won’t share this concern, but you may wonder how investors who should be wise about money and their investments find themselves in this precarious situation.

There are a variety of reasons someone may not have enough to retire. Here are nine of the most common things in life that can catch people out.

1. Holding too much cash for too long

Holding cash, or cash equivalents, may not be a bad thing, but doing so for too long could harm your long-term savings goals.

Cash rarely beats inflation. Low rates of interest mean that you’re likely to lose money over the longer term, even when inflation levels are low.

Some would-be investors can feel more comfortable holding their assets in cash because they don’t understand stocks and shares and are reluctant to seek financial advice. But studies consistently prove that equity markets outperform cash over the long term.

As wealth manager and broker Charles Stanley states, “£10,000 invested in global markets in 2010 would now be worth approximately £30,742, compared to just £11,230 in a cash savings account.”

2. Reacting the wrong way to markets or adopting a herd mentality

Research by Vanguard shows that investors often sell when they should buy and buy when they should sell.

Investors like to buy assets that have gained value, instead of those at a low price that have still to realise value. In almost every type of market, investors lose money when they try to respond to news, or to anticipate events.

Financial markets are noisy and unpredictable. There’s a lot of news and prices jump around. But, over the long term, market behaviour is surprisingly consistent. So, it’s important to have confidence in the strategy and remain invested.

The best way to avoid falling into this trap is by using a financial expert you trust.

At BMP Wealth, our investment approach revolves around understanding the relationship between risk and reward. We manage the risks relative to the objectives of your portfolio, as well as your own personal objectives.

3. Long-term illness

Falling ill when you haven’t got insurance could force you to use your savings to cover household costs and medical expenses.

The extent to which this can affect the amount of money you have to retire on will depend on how long you are unable to work and how much of your savings you have to spend to keep things afloat.

Private medical insurance might help defray the costs of treatment you may need but it won’t replace lost income if you cannot work.

To avoid illness preventing you from enjoying the retirement you imagine for yourself, consider putting the right protection in place. A combination of income protection insurance or critical illness cover should provide a good level of cover.

The choices you make will affect both the cost of cover and the amount of protection you get so it’s a good idea to get expert advice to make sure you have the best cover for your circumstances.

4. Poor money management

Managing your money and finances badly can have serious consequences.

We all make mistakes when we’re young and only just discovering the joys of financial independence. But repeatedly making poor financial decisions will inevitably lead to problems in funding your retirement.

Avoiding debt entirely is impossible for many of us, but how you manage that debt and how you plan and save for the future will make all the difference in being able to afford to retire and fund a comfortable lifestyle.

Avoid falling into this trap with good financial management. Make a budget and stick to it, stay on top of bills and only buy on credit what you can afford to repay. Make saving a habit; save regularly for things you want to purchase and invest consistently for your retirement.

5. Paying too much in tax

Tax planning forms a large part of your retirement planning strategy, not only in mitigating tax in retirement but also in helping to reduce taxes you pay while you’re still earning.

Internationally mobile expats often have complicated tax positions. You may be potentially liable for tax in several jurisdictions.

The Common Reporting Standard (CRS) allows jurisdictions to exchange financial information on an intergovernmental level and “big data” utilisation means that governments can actively chase tax “evaders” more easily.

UK legislation enables Her Majesty’s Revenue and Customs (HMRC) to withdraw assessed tax from bank accounts of suspected tax avoiders. If this happens to you, you must prove your innocence to get your money back, which can end up being costly.

As debt-burdened governments seek to maximise their tax revenues, these problems are becoming increasingly prevalent. Add to this the fact that internationally mobile expats and foreigners are an easy target for governments because changes in legislation for expats tend not to lose them votes, and so you can appreciate how vulnerable you may be.

To avoid time-consuming tax investigations, ensure your tax position is clear and that your assets are organised. Do this alongside a tax-efficient approach to your investments and your money should still grow more quickly.

We work with leading tax professionals and know what does and doesn’t work. We lean towards tried and trusted, non-contentious strategies that are specifically designed to defer or reduce tax.

6. Divorce or separation

Divorce or separation can have a negative impact on your finances and affect the amount of money you may have to fund your retirement. After the family home, pensions are often the next biggest asset which you might have to split with your ex if you get divorced.

On top of dividing your assets you may have to pay maintenance, which will impede your ability to save for your retirement.

Second marriages can lead to further financial problems.

Many Western men come to Asia and find themselves making decisions led by the heart rather than the head.

These Western/Asian romances encounter vast cultural and religious differences. A wide age gap can exacerbate difficulties once the honeymoon period is over and lead to a second or third costly divorce.

7. Helping out your kids

It’s hard to watch your children suffer but, before you step in and help, it’s wise to consider the impact on your own plans.

Research from Aldermore suggests that, since the coronavirus pandemic began, 25% of parents in the UK have provided financial support to their offspring, paying out an average of £1,922 since March 2020.

In the last 12 months, parents assisted their children in the following ways:

  • 8% helped to cover household bills
  • 6% contributed to rent payments
  • 5% welcomed children returning home
  • 5% helped to pay off debt.

The same study revealed that:

  • 39% of parents are using their cash savings
  • 27% are using inherited funds
  • 12% are helping children buy their first home by downsizing their own property.

You may face the hard choice between helping your children out and making sure you have enough savings to fund for your retirement.

Whether it’s paying to support children through college, gifting money to help them get a foot on the property ladder, or simply letting them live with you rent-free for longer than is financially viable, all these things can affect the money you can save for retirement.

Ask yourself if helping your children is the best idea. It may be in both your interests to dish out some tough love, instead of cold hard cash.

8. Business failure

60% of businesses fail in the first three years. This sobering statistic is good reason to make sure you go into business with a clear idea of your proposition and the market you’re entering.

Research from U.S. Bank reveals that most small businesses fail because of cash flow issues. Their study found that a poor understanding of cash flow management, having too little money starting out and an undeveloped business plan all contributed to business failure.

There is always risk associated with business.

Make sure you are well-equipped to navigate problems and be aware of evolving risks before they threaten your business.

Understand risks and know how to juggle risk and reward to help protect your business. Being agile and proactive when you recognise potential problems can also attract prospective new customers, new products and services and different ways of working to drive more profit.

9. Career stalling

You may reach a stage in your career where you have climbed as high as you can go. If your earning potential stalls, you could struggle to keep saving as much as you would like for your retirement while continuing to cover increasing living costs.

An AARP survey found that around two thirds of workers aged between 45 and 74 had seen or experienced age discrimination in the workplace. Most of the participants believed the negative perceptions set in when workers hit their 50s.

There are ways to mitigate this problem before it cuts your career short:

  • Embrace new technology, especially new technologies that can improve productivity and profitability in your company.
  • Show that you are open to new ideas. Take on assignments that allow you more responsibility and volunteer for tasks that will give you a trial run at taking on a new position.
  • Highlight your value by quantifying your achievements and actively promote the ways you are contributing to the company’s bottom line.

 

Get in touch

If you know you have failed to save enough for your retirement because of any of these reasons and want to explore your options, we can help put you on the right track and give you peace of mind.

We specialise in building, managing, and preserving the wealth of Hong Kong’s international community. By creating a personalised, comprehensive financial plan, we can help you realise and achieve your greatest goals in life.

For more information, email info@bmpwealth.com or call +852 3975 2878.

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