If you’re going to retire, or you’re in your retirement, or thinking about retirement, seeking financial advice is one of the most important decisions you’ll undertake. Many people never learn its importance until they have already made a mistake.
Financial planner, James Parami, in an interview with SBS Filipino, shares the common mistakes you must avoid to make sure you don’t suffer financially when you hit your retirement age.
1. Taking financial advice from friends and family
As a financial planner, Mr Parami says he sees clients make some pretty bad mistakes by taking financial advice from family and friends. He shares a story about her mother to illustrate how people easily fall for this.
“You know what your tita said, I can do this and this.” It is common to hear such statement after talking to friends. But the question is, why do we value such advice?
Mr Parami sees this as something that is embedded in the Filipino culture. “They trust and talk to each other a lot.”
“I do encourage them to have a chat and talk about their retirement with each other and everything else but then it is encouraged that once you are deciding to do something, it is best to go seek proper advice.”
Whether you are in your 30’s or 50’s or 60’s, the value in getting advice from a qualified financial adviser is to be able to map out what is practical for you to achieve your financial goals.
“If you make mistakes, it can cost you thousands of dollars,” Mr Parami says.
2. Withdrawing your whole allowance at the age of 65
After managing to save a decent amount for their nest eggs, some people may be tempted to withdraw their superannuation savings in lump sums and put them in the bank.
“I think people do that because they believe that once it’s in their bank account, they can access the money,” Mr Parami says.
He warns though that this could be a bad financial move and points out that keeping money in your superannuation has benefits.
“The reason why we don’t do that and why we suggest to keep money in your superannuation is superannuation when you retire is tax-free. So if you have a $100,000 sitting in a bank account, you will earn interest on it and then you have to declare that interest as income in your tax returns. You may have to pay tax to the government.”
“If you have a $100,000 sitting in the bank account of a self-managed super fund. They are both in bank accounts but one is sitting in superannuation. In superannuation, it does not pay any tax. You do not declare that to tax man so the $5,000 is all your money,” he says.
