Bryan Binkholder Discusses the Number One Retirement Pitfall
Are You Properly Prepared for Retirement? According to The National Retirement Risk Index over half of all working Americans are currently at risk of reaching retirement age without enough finances to maintain a reasonable lifestyle. I suspect that these
It is very likely, if you are reading this, that you fall into one of three categories. You either have not yet started aggressively planning for retirement, you’ve experienced a loss in your investments, or you are leaving money on the table that could (and should) be accumulating wealth for you.
Today I want to talk you about ‘avoiding loss.’ Certainly one of the most disheartening things that can happen is to properly plan for retirement, have a nest egg set aside, and then lose all or part of your savings due to circumstances that could have been avoided.
My own parents were the victims of an investment scam, losing over 100k to a financial salesperson posing as a caring, knowledgeable advisor. He was very compelling and his investment plan sounded fool proof. All it takes is one decision like this and your dreams of retirement can be gone forever. Read the following and learn how you can avoid the “Pitfall of Loss”
The First Stages of Retirement Planning
Before we start, let’s look at the normal pattern of retirement planning and the way it generally plays out.
- Stage 1 – The time period when an individual starts thinking seriously about their retirement finances. Unfortunately, it typically occurs within 5-10 years before retirement. This is the time frame where losses or any decrease in income can have a significant effect on an individual’s ability to retire. Losses here may even cause a person to have to work longer. During stage 1, many are thinking of ways to cut back on expenditures and are looking at the numbers, worried if they’ll actually have enough for retirement.
- Stage 2 – The individual has officially hit retirement age. Emphasis here is on the word “age”. No longer is retirement a given. Just because a person hits a certain age, there’s no guarantee that they will be able to quit working. If they can retire, they are typically doing a lot of budgeting and re-budgeting in order to adjust to this new lifestyle. They are feeling their way around retirement. Reality is beginning to set in and concern about spending is often high during this stage.
- Stage 3 – The third stage of retirement is two-fold. First, once a budget seems to be working, maybe about 5 years into retirement, individuals typically go through a period where they start feeling more financially stable and begin to enjoy themselves more. They’ve learned how to budget their income and they know where their investments are. At this point, retirees typically start taking more vacations, loosening up on finances, and becoming more comfortable with their overall retirement situation. Trips and spending generally last while the retirees are enjoying good health. Once the health factor comes into play, the trips generally cease, schedules change, and as long as the individuals have appropriate health care, extra spending will decrease.
- Stage 4 – Finally, the fourth stage of retirement is entered. As long as the retiree has done a proper job of financial planning, they have remaining funds. At this point they begin to say, “I’ll never spend this money. What can I do with it? Who can I help?” Retirees often begin to look for charities or family members who need assistance.
Okay, this is a picture of the normal pattern of retirement, and although a better job of pre-planning could be done, this picture doesn’t look so bad. After reading this, you’d probably agree that the ability to vacation and relax during retirement (even for a short period of time) and to have money left over to give to our children or a charity is the ideal situation. So, what can go wrong? If you look back at Stage 1, here’s the key: “This is the time frame where losses or any decrease in income can have a significant effect on an individual’s ability to retire,” – that’s a big variable, and that’s what I want to discuss today.
What are these losses? How do we recognize them, and how can we avoid them? Here’s my list:
The Pitfalls that Can Ruin Your Retirement Dreams
Are You Too Trusting? – I once knew a guy who was so mistrusting that he wouldn’t even allow a mechanic to work on his vehicle without standing right over them, watching their every move. Then, to ensure that new parts were indeed installed, he would request the old parts to be given to him in the box the new part originally came in. If all this was not done, he would refuse to pay. This is far beyond a normal level of mistrust, but there is some benefit to covering yourself.
Many of us have been so bullied by the retail industry and salespeople in general that we feel extremely uncomfortable asking for simple things such as credentials, disclosures, and a breakdown of fees.
Siding with mistrust is not a bad thing. We have to face the facts that we live in a society with all types of people, and some of them live with an agenda to prey upon the trusting. Yes, he may say he’s a financial advisor with years of experience and an excellent track record. He may even look just like your favorite grandson, Joe. Do yourself a favor and make a rule across the board with no exceptions. Thoroughly investigate anyone you’re thinking about taking advice from, –especially financial advice.
Pressured By Jargon - One of the signs of an advisor that should not be trusted is one who talks confidently in language that is absolutely meaningless to you. Throwing around confusing industry jargon and then waiting for your reply (as if you are supposed to understand) is a sure sign of intimidation and it’s meant to pressure you into compliance. Some financial salespeople feel that if they make you feel uncomfortable enough, you’ll simply give up, figuring that investing is too difficult to understand. This couldn’t be farther from the truth.
You never have to blindly trust someone with your finances. Your financial advisor should be able to answer all of your questions and explain all aspects of your investment plan. In the words of David Swensen, Yale University’s Chief Investment Officer, “Rule number one: Never invest in anything you don’t understand.”
Confused By Titles – It’s funny how a title on a business card can be such a game changer. In the financial field, anyone can put wealth advisor, wealth manager, VP of investment services, or financial advisor on their business card and it’s perfectly legal. Of course, all financial advisors are not held to the same standard. Only certain advisors are fiduciaries, which means they are required to put the interests of the client ahead of their own. Advisors who are not fiduciaries can (and do) place their own interests and the interests of the brokerage firm ahead of the client. For more information about the confusing titles of financial advisor, check out my blog post: Understanding Misleading Financial Advisor Titles.
Wrapped Up in Fees - Hidden fees are a nightmare for investors. There are often multiple fees that an investor unknowingly pays, many of which are not broken out or itemized. Instead they are wrapped up in creative ways all in an effort to continuously siphon money out of the investor’s pocket and directly to the salesperson, the brokerage firm, and the mutual fund companies.
Even with the recent disclosure laws that have gone into effect, financial salespeople will continue their antics, hoping that confused investors don’t have the time or energy to read through their monthly statements.
Does all this sound discouraging? It doesn’t have to be. With the right information, wise investing with low fees, a fiduciary standard and a plan that is easy to understand is easy to obtain. Deceitful financial salespeople count on getting to you before you can get to the right information. Educate yourself by taking advantage of our blog, videos, and especially my CD, The 6 Pitfalls of Retirement Planning, which is completely free of charge to you. Make sure you check out all the resources available online-free of charge- by going to The Financial Coach Radio Show Website