5 Money Mistakes That Ruin Retirements (from a 20+ year adviser)

Look, the reality is we're all going to make mistakes. I'm sure in the past the ones I've made, they've been some doozies, but fortunately I've learned from them. And as a retirement advisor for over 20 years, I've seen a lot of retirement mistakes that unfortunately can have a significant impact on the quality of your retirement. I don't want to see this happen to you, so in today's video I want to share with you the mistakes that people make that really set them back. Whether they're looking to retire in a few years or they're already retired, these are the mistakes I want you to know about and avoid them. And the first mistake is trying to catch up. When you're close to retirement, maybe you're close to your goal, maybe you're a little further from your goal than what you wish you were, and it's just human nature to say, you know, the market, as I record this, the market's up over 30% in the last 12 months, and it's just human nature to say, boy, I only need that for one more year, you know, I'm 25% away from my goal. And if I could hit, if I could get returns like that in the next 12 months, I'd be fine. So maybe they go from an overly conservative investment to one that's overly aggressive because they're trying to catch up. And that, unfortunately, can really hurt you. It can cause you to make mistakes. It can cause your account, let's say the market, instead of being up by 30%, right, anything that can be up by 30%, unfortunately, can also be down by 30% in a year. And let's say you get unlucky, and instead of the market being up, the market's down. Well, now you are 25% away from your goal before this correction, and maybe now you're only halfway to your goal. And it can lead to this chain where you're making a series of bad decisions that are hard to undo, that are hard to reverse. Think about, let's say your goal is to save a million dollars. And let's say you're at $800,000. And so you're 25% of the way there. And you decide, you know what, I'm going to get aggressive. I'm going to increase my equity exposure, my stock exposure, because you want to catch up. And I only need this to work for the next 12 months. Anytime you hear those words, I only need this to work for a period of time, you have to be careful. So unfortunately, that $800,000 can then become $500,000. And now you're in this loop where you're in a really bad situation. And I don't want to see that happen to you. Okay, number two. Number two is not spending early in retirement. And the reason that this is so dangerous is because once the youth of your senior years have passed, right, they're gone. And unfortunately, they're gone forever. And we're not going to get similar years in the future. Unfortunately, and we all need to be super sensitive to this. By the time we're 60 years old, most of us only have 1000 weeks of healthy, active time in front of us. And that's not a lot of time. And if we give up 100 of those weeks, the first two years, because we're afraid to spend, because we don't have a plan. Those are years we're never going to get back. And unfortunately, those were probably our healthiest, our most active year. So while you're still working, come up with a game plan. What are the things that you want to do? How much can you afford to spend in retirement every year and maybe budget to spend a little bit more in the early years? Because this way, you're doing the things when you have the health. It can often be later in life that we find out you know what, I didn't do these things. And now I can't do these things. Maybe I've had a stroke. Maybe I've had a heart attack, it's harder for me to get away from my home base where my cardiologist is, as an example. So that's the second mistake is not taking full advantage of those go go years in being overly conservative, sacrificing unnecessarily, and giving up that golden period, even though you might have had the courage to retire. We need to not only have the courage to retire, but the courage to take full advantage of the youth of our senior years and know that our spending is likely going to go down in future years. Okay, so that was number two. Number three is not planning for what for many of us is going to be one of our largest expenses. And for the first time in our life, maybe we have the ability to control this expense, where in the past, we didn't have a lot of control. And that is our taxes, right? If you're a W-2 employee, if you're working for somebody else, we get a paycheck, and kind of the taxes are what the taxes are. There's some things we can do to tweak around the margins, but there's not a whole lot we can do. But when we're retired, there are a whole lot of things that we can do. And chief amongst those is thinking about the three accounts that hopefully you've got put in place. One is a regular taxable account, a regular bank account, where you pay taxes as you go, right? You get interest, you pay tax on that. Or maybe a taxable brokerage account at like a Schwab, a Fidelity, Vanguard. As we recognize capital gains, as we get dividend payments, in a regular taxable account, we're paying taxes as we go. So that's one account. The second account is a don't tax me now, but tax me later account. Your regular IRAs, your regular 401ks. And unfortunately, for many people in retirement, that's their largest account. And I say unfortunately, because every dollar you take out of that tax is going to be classified as ordinary income, and you're likely going to have to pay tax on that. So that can be an expensive account. And then hopefully you have a third account, which is a tax me now, but never tax me again account, a Roth account. And unfortunately, we do not get the tax break when we put money in, but then it grows tax free. And if we abide by all those rules, we can take money out without paying taxes. And if you have those three accounts, you can kind of decide what tax rate do I want to pay. Now, sometimes people make a mistake and say, when they first retire, ah, you know, I don't have any more W-2 income. I'm not going to pay any taxes at all for a couple years. And that can be a mistake because the U.S. has seven tax brackets, and the first two are pretty low, 10% and 12%. But then it jumps to 22%. So for most of us, we want to do what's called filling up those lower tax brackets. For many of us, if we could pay tax at the 10% and the 12% tax rate, we'd be happy to be able to do that. So thinking through what is likely going to be your second or your third largest expense in retirement, which is taxes, and having a plan for that. And oftentimes it makes sense to have a professional, to have an accountant, to have a fiduciary financial advisor help you think through that. Okay, so that's the third one. The fourth one is not investing in relationships. Unfortunately, the divorce rate for seniors has doubled since the 1990s. And one in seven boomers, and most boomers are now the youngest boomers, I believe are 60 years old as I record this. So most boomers are at retirement age or in retirement already. And unfortunately, one in seven of us are on antidepressants. We're being treated for depression. So one of the ways to help get, you know, and I'm not a therapist, but for sure one of the ways that increase your happiness in retirement is having meaningful relationships and investing in those relationships. So that tends to be another big mistake is not investing enough in relationships. And then a really big one that can have a huge impact on our retirement, kind of related to the first item, but different. And that is not having a plan for your asset allocation for your retirement portfolio. What percent of your portfolio is going to be exposed to stocks and equities? And what percent is going to be exposed to short-term, high-quality bonds that are designed to provide stability for your portfolio? And getting that right is going to determine 80% of your investing success in retirement. But unfortunately, a lot of people just kind of, you know, it feels like this is what it should be. Given its importance, again, I really think it's important to get together with a professional and get professional advice on your asset allocation. So those are the big items. Making decisions matter and decisions on these items I just talked about, but also some of the things that, until you get to retire, is really important. What are your decisions until you get to retire? And that's why I made this video up here, eight things to stop doing in your 50s and 60s until you get to retire. I'll see you in that video. Bye-bye.