Top Retirement Planning Mistakes: The Two Financial Risks That Can Steal Your Best Retirement Years
BLUF (Bottom Line Up Front): In a decade of helping people get to retirement I have identified the two biggest threats to retirement.
YouTube▶️ below if TLDR.
1. Investors use the same investment for retirement that they used when saving for retirement.
2. Procrastination station, “no action option”, analysis paralysis. Call it what you want, but the phrase “the market always comes back” has cost people more money, time, and happiness than anything else in investing.
Risk 1.
Up front, let me be clear, I don’t have a dog in the fight when it comes to investments. Cash, mutual funds, stocks, real estate, business…I don’t care what an investment is called, I care what it does.
Except variable annuities, I hate those, but I digress…
Here are some examples
Investment: Target date fund
Result: Lost 24% in the market down turn, has only made back half.
Investment: S&P500
Result: Lost 24% in the downturn, has almost doubled since then.
Investment: Cash
Result: Safe, liquid, low % returns
These are the most common tools people use to get to retirement. But, what is the point of retirement, is it wealth accumulation or income and preservation?
“Buy and hold” mutual funds works when you have 30 years to go through the decade long downturns and wild roller coaster ride. You are trying to accumulate wealth you can use or pass on later.
When you are in the “Retirement Danger Zone” (within 5 years of, or in retirement) the purpose of money is different.
You turn off your earned income, you need income from your investment. Heck, even if your social security and pension cover your income, you want to pass on your assets to people you care about. It stops being about accumulation and it becomes about income and preservation.
So the investments you use HAVE to change.
Its is math that losses hurt you more than gains help you.. Especially in retirement.
Look at the chart at the top, two brothers retire with the same amount of savings, withdraw the same amount of income, and at the end of 10 years, one brother has 1.2 million and the other has 152k.
In retirement you need things that produce high levels of income and safety. Or investments that give safety with a high level of growth.
As one prospective client put it to me recently “I just want off the rollercoaster.”
Risk 2.
Phrases I hear all the time from prospective clients and long time clients alike.
“This may be a dumb question.”
“I did …… wrong.”
“I should have done….”
Listen…we all specialize. When I signed up with Everett PD and HR asked me about my 457b plan “do you want Roth or Traditional…do you want a target date fund or….”
I was already tuned out.
No one should ever look back.
A friend of mine, probably the 2nd smartest guy I know, and I were having lunch one day talking stock market. He said “man, I was looking back at my old 401k, had I just invested in the S&P I would have xxx more $.”
The second biggest risk is, without a doubt, PROCRASTINATION STATION.
The feeling of “it ain’t broke, don’t fix it” has caused so many people to pass up a change that could help it hurts. Zero judgement, money stuff is personal, and I am constantly learning.
But there is one inviolable truth (ok, there are a lot)…
In the “Retirement Danger Zone” losses hurt you more than gains help you.
Without beating the horse already headed for the glue factory, if there is in investment that can:
1. Reduce Risk
2. Provide good returns/high income
All the good intentions on Earth can’t get the money back if the .com…housing…covid…AI bubble bursts.
Anyhow, review your accounts, find some investments that do 1 & 2 above…and you must take action.
Thanks for coming to my TED talk,
Chris
