FINANCIAL SUCCESS: DON’T MAKE THESE MISTAKES
As originally appeared in The Jerusalem Post on October 31st, 2019.
Never interrupt your enemy when he is making a mistake. Napoleon Bonaparte
When I coached little league baseball, I was always most proud when the young players finally figured out how successfully master a skill. They would try and fail and then repeat the same process and fail again. Then suddenly they figured out that doing the same thing again is a certain path to failure so they tried a different approach, and voila, they mastered the skill. Most of us make mistakes, umm, except for my dear wife. The key is to learn from those mistakes and avoid repeating them. Unfortunately, when it comes to finances and retirement planning I have seen investors repeat the same mistakes over and over again, and the long-term damage caused is great. For individuals looking for a comfortable retirement, avoid making these common mistakes.
What’s a plan?
I can’t say how many times I meet with retirees and when I enquire as to their goals and needs I get a blank stare. Throughout life, you need to define your financial goals and needs. When retirement approaches your plan takes on even more importance.
Earlier this week I went out for a run with my oldest child. As we got past 5km I asked why she wasn’t keeping up with her slow and aging father. She said that she didn’t know how much further we were going so she wanted to save her energy. I responded that we had decided on running 7km and she knew that we had 2km left. She said that she needed to be able to see the finish and once she did that she would run much faster. As The Financial Mentor, Todd Tresidder so eloquently writes, “Stated simply, you can’t get to where you want to go if you don’t even know where the destination is. You must set the goal and then design a plan to achieve it. Failing to plan is the same thing as planning to fail. The sad truth is most people spend more time planning their vacation than their financial future. You must be different.”
Spend too much
When I meet with a prospect I ask “how much money do you spend?” Much to my chagrin, most people can’t answer that question but for a retiree, that lack of knowledge can lead to running out of money and having to move in with the kids. Many individuals in their initial retirement years end up spending much more than they are able to as they travel the world or eat out at restaurants on a regular basis. Over-spending at the beginning of retirement will make it much harder to have money left as the years’ pass. Keep in mind in almost all cases the money you retire with is the money you will have to make it to 120 with.
Aggressive investments
Lacking a budget, retirees do not know what kind of income needs they need. I often see investment portfolios that are far too aggressive for what the client needs. A market drop can be devastating for a retiree as if suddenly they need a chunk of cash and the market has just dropped significantly, they are stuck. As retirement approaches, you should figure out how much you will need to withdraw in the first five years of retirement. Then start to shift that money into more conservative investments to make sure that you will have that 5-year runway. As you go through retirement, keep rolling over the same 5-year bucket approach of keeping that money safe, so that you always have that peace of mind.
Money freeze
As retiree’s age, they usually don’t add someone to the account to execute changes on their behalf. I advise retirees to give a child or a trusted confidant trading authority. More than once I have seen a case where an older client had an individual account and took ill. They were then unable to execute any instructions in their account. This is the time when access to money is extremely crucial, and since the individual is the only one with any authority over the account, the money becomes as good as frozen. Consult with your family and advisors to devise a plan and instruments that work for you to give signing authority to someone. I can’t stress enough the importance of taking care of this before it’s too late.
Learn from the mistakes many other people have made, and don’t repeat them. This will go a long way towards a financially comfortable retirement.
The information contained in this article reflects the opinion of the author and not The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.
