When your loved one needs someone to take care of them or make decisions on their behalf due to incapacity or incompetence, you probably think of ways to take care of them within the bounds of the law. This is where guardianship and conservatorship as legal protections come into play.
In many finance websites, blogs, and articles, a lot has been said about how to prepare for retirement, but I believe there hasn’t been enough written about what to do when you get there. More specifically, there’s a lack of content about mistake, or mistakes, to avoid.
In this article, we’ll explore several mistakes to avoid when you reach this milestone.
Spend beyond your means
This seems obvious, but once the psychological barrier of spending versus savings is breached, people (not everyone) develop this mentality of “I saved for 40 years for this moment, why shouldn’t I enjoy it?”
You should enjoy it. You worked your butt off for it, right? There are strategic ways to do this, however. The mistake is going gangbusters right away.
- Create a budget/spending plan – Your budget in retirement will be different than your budget before retirement. Create line items for everything, and get real granular with your discretionary spending (i.e. sub line items to breakdown where the discretionary spending is actually going).
- Plan for healthcare – Healthcare costs, generally speaking, will be your largest expense in retirement. Plan accordingly.
- Income strategy – More than likely, you’ll have a few different income sources (social security, pension, retirement distributions, etc.). Create a line item for each source.
- Senior discounts – Take advantage of every single one. There might be a psychological hesitation with this, as it forces you to come to terms with your age/where you are in life
- Spoil grandkids – Every grandparent wants to spoil their grandkids to death, but it must be done within reason. Get creative and be strategic about when and how much.
Make Quick Decisions
Another mistake is making quick decisions. Don’t do it. Any decision you classify as BIG needs to be well thought out. This could be anything like moving, downsizing, vacations, or eliminating a vehicle.
I would argue that any decision about an expense that’s not in your budget/spending plan, should be thought about for several days. My rule of thumb is a week. By then, the euphoria of such a purchase has gone away, then you think more logically about it.
Over the years, a big mistake clients make is the desire to invest more aggressively than they should. Oftentimes, this is to compensate for an inadequate savings rate during their working years or a significant market pullback that hurt their portfolio.
While capital appreciation is still an investment objective in retirement, it’s no longer the primary goal.
This primary goal should be capital preservation. Limiting losses on what you have. This has less to do with time and more to do with your decreasing ability to go out and make more money. Allocate your portfolios accordingly.
Ignoring Estate Planning
Estate planning is a key ingredient to your financial planning recipe. It mustn’t be ignored. Every debt and asset you have needs to be accounted for, listed, and given a task for when you pass.
Estate attorneys can be expensive, but I believe it’s 100% necessary to find one you trust, so your estate is well taken care of.
Your social life is more important than ever. Countless studies show that people with strong relationships outlive those that don’t. So the mistake here is not making your social life a priority.
Join a community, volunteer, retain, and nourish friendships. Whatever flavor of social life sounds desirable, make it a priority.
Letting Yourself Go
Taking care of your mind and body is always important, but especially now. It will keep you healthy, therefore, lowering your healthcare expenditures, but it’s also another way for you to meet people.
Go for walks with neighbors and/or friends. Join a gym. Many of which have reduced rates for seniors. Additionally, many health insurance companies have “silver sneaker” programs that offer inexpensive services and programs for seniors.
Expecting it to be easy
This is a BIG life change and the transition will not be easy.
Not only will you shift from saving to spending, but those social connections you developed over your working years can reduce in frequency and strength.
Go easy on yourself and be patient.
Taking Social Security too early
Unfortunately, there are situations and scenarios where taking Social Security Income (SSI) distributions early is necessary. However, for those of you where this does not apply, speak with a trusted advisor about optimizing your SSI strategy.
Scammers adapted. They’re smart and they know how to target susceptible people. Unfortunately, elderly individuals are inherently more at risk than the general population.
Any email, phone call, or text that you receive (unsolicited, of course) should be greeted with a fair amount of skepticism. Don’t willingly give out any pertinent information (name, DOB, social security number, etc.).
Doing it alone
A BIG mistake people make is thinking they can plan by themselves. It would behoove you tremendously to consult with several experts. Estate attorneys and financial advisors should be at the top of this list.
Do your research, check online reviews, and get testimonials from trusted contacts. Having capable professionals in your corner could set you up for success and put your mind at ease.
With 2020 staring us in the face, it’s time to review goal setting and the systems you can put in place in order to reach those goals.
“A goal without a plan is just a wish.” – Antoine de Saint-Exupery
That said, let’s look at systematic ways to approach goal setting and actionable tools you can use to smash those goals.
How to begin
- Large/Lifetime goals – These are things you want to accomplish throughout your life. They can be philanthropic, health, financial, etc. Figure these out first.
- Short-term – Now that you have your long-term/lifetime goals determined, you can break them down into shorter-term goals. Consider these stepping stones, and a lot of these will change as you age. For example, your philanthropic goals. There may be causes you care deeply about now, but that can change.
- Actionable steps – Once you have your lifetime goals broken down into manageable targets, it’s time to create steps to get there and I’ll illustrate that using the three examples above.
- Philanthropic – Research causes and charities. Pick the ones you most identify with. Review your budget to find out how much you can give. Do a little more research to find out if your donations are tax-deductible (most, if not all, should be).
- Health – Establish the specific reason you want to be healthier (for yourself, your partner, your kids, grandkids, etc.). Research a diet that could work for you. Research an exercise regimen that could work for you. Consult experts (i.e. nutritionist and personal trainer).
- Financial – Create a budget/spending plan. Cut expenses. Save for emergencies. Insure you and your belongings. Save for retirement.
Here are a few articles I’ve written in the past about financial goals:
We can think of systems as the sub-category of actionable steps. A routine is another word for it. When it comes to goals and habits, you can’t rely on will power. You have put a plan in place to do the work for you.
Take exercising for example. You need to create low barriers for yourself. Wear your gym clothes to bed or have your bag packed the night before.
If you go to the gym, put your bag and your keys in a place where you have to pass them to get to your car.
If you exercise at home, have your routine and your equipment laid out and ready for you.
For example, if your saving for a down payment, go to your banking app and transfer $1 from checking to savings every morning (or whatever amount is realistic for you).
When that becomes second nature, bump it up a dollar a day.
Another thing that James says is, “People ask me all of the time, how many days does it take to create a habit? My answer, all of them because if you stop doing it for one day, it’s no longer a habit.”
External versus Internal
This section is speaking specifically to mental health versus other goals. You could also consider physical health as an internal goal, but for this article internal relates to mental health.
There are several things you can do to work on your mental health. See a therapist, exercise, and start a journal. Those three are low-barrier, easy things you can implement into your day to help.
Meditation, medication, and other forms of mindfulness training/practice can also help. There’s a podcast that I listen to regularly called “10% Happier” that will help you with establishing a meditation practice.
Do some research about this. Meditation can and will take many different forms, and not each modality will be right for you. Reading has also proven to have meditative benefits.
It really is up to the individual as to what they consider, short, medium, and long-term, but my definitions are as follows: Short-term – less than 3 years. Medium-term – 3-15. Long-term – 15+.
My definitions are almost entirely based on the investability of those assets for that specific time period.
- Short-term – Emergencies, a new car, what have you. This is money you will need soon, so risking it in the stock market is out of the question. High-yield savings accounts should be your go-to in this scenario.
- Medium-term – Things like down payments for a house or sending your kid to college. What you’re saving for will dictate the vehicle that you use. If it’s saving for college, a 529 or a Coverdell ESA should do the trick. If it’s for a down payment, your best bet is usually a taxable brokerage account, as there are no fees for early withdrawal.
- Long-term – This should be strictly focused on retirement. Assets should be in a retirement account(s) and invested (investment selection should be based on risk tolerance and time horizon).
Once you’ve established your short, medium, and long-term goals you can break them down into actionable steps as we talked about earlier.
Wrapping it up
Each New Year brings about resolutions that we hope to achieve. Whether it’s getting in shape or paying down debt, your barometer for success should be progress and consistency.
Are you in a better place than you were on January 1st? Do you have more saved? Are you still committed to the goals you set in the first place?
Yes. It feels great to set a target and hit it, but as far as I’m concerned, if you’re better than you were yesterday, that’s all that matters.
Take it one day at a time and keep your eyes on the prize. You got this!
The talk of impeachment is flooding the headlines, so we’re going to explore it, how impeachment proceedings took place in the past, what happened to the market with each instance, and what you should do with your money/investments while these events transpire.
What’s the process?
The first step in any impeachment proceeding begins with a formal inquiry. This is done by the House of Representatives, and that’s where we are at this point in time.
During the inquiry, the evidence is gathered by the house to help make their case. Once they’ve gathered everything they needed, they take a vote.
If that vote passes, it goes to the Senate. They, like the House, review the evidence and take a vote. If the Senate’s vote doesn’t pass, then the President may be acquitted, and things end there.
What history tells us
There have been three impeachment inquiries, with only one actual impeachment.
The first was Andrew Johnson in 1868. The second was Richard Nixon in 1973. The third was Bill Clinton in 1998.
Which one was impeached? Bill Clinton. However, the Senate acquitted him and he was not removed from office.
When Andrew Johnson went through the impeachment process, the stock market (yes there was a stock market back then) really didn’t do anything, finishing that year up 1.5%.
During the impeachment proceedings with Nixon, the United States was in the middle of a recession. From the initial inquiry to the day he resigned from office, the S&P 500 fell about 30%.
With Clinton, however, the economy and the stock market were in the middle of an expansion. From beginning to end, the S&P 500 gained about 28% during his impeachment process.
What history tells us is that the period surrounding the impeachment will lead to greater volatility, but the long-term direction of the market is determined by fundamentals.
Be mindful of the headlines
The current impeachment inquiry with President Trump is dramatically different from the other three.
- The internet makes updating the public instantaneous
- Algorithmic trading can be programmed to execute orders when publications mention Trump, impeachment, etc.
- We’re in the middle of a trade war with China, so uncertainty at home (U.S.) puts Trump in a weaker position to negotiate. What’s more, if impeachment looks more and more likely, Trump may be inclined to make a deal to help his case…even if it’s a bad one.
What should you do?
That depends. If you have 15+ years until you need to access your investments, I would tell you to do nothing. If you’re in retirement or it’s right around the corner, however, I would think about being a little more conservative.
When you grow more reliant on your retirement savings, your primary objective must move from capital appreciation to capital preservation.
I’ll link to several resources that should give you more guidance about retirement planning by age, investing in volatility, and more information about what’s been discussed here.
Questions are a fantastic way to understand things better. They are vitally important in our everyday lives.
One area where I think they are underutilized is personal finance.
You NEED to ask yourself questions on the regular so you can discern if you are doing the right things and taking the correct steps for YOU.
In the following article, we’re going to explore the various questions you need to ask yourself in order to be financially effective.
What is my goal with money?
This is a fairly general question, so we’ll break it down into three buckets: short term, medium-term, and long term.
- Short-term (Under 2 years) – If you are saving for a short-term goal, what is it? A vacation? Down payment on a house? No matter the goal, that money will be used soon so the best place for it is in a savings account.
- Medium-term (2-10 years) – This could be anything from a down payment for a house to saving for your kids’ college education. What you do in the interim depends on when you’ll need it and the goal you are saving for. If it’s less than 5 years, I’d still recommend a savings account or short-term bonds. Something that can earn you a little interest, but is still relatively safe. That 5-10 year period depends on the goal. If there’s a particular dollar amount you need to it (down payment, for instance) I’d go no more than moderately aggressive. You want to earn a little, but you don’t want that saved amount to go under what you need.
- Long-term (10+ years) – Most often, a goal that’s over 10 years away can be invested in the stock market, though the percentage of your assets that’s actually in the market depends on the risks you are willing to take and when you need to access those funds.
Related reading: Financial planning for all ages
How much am I willing to lose before I sell?
I almost always propose this question to new clients because it gives me a good understanding of their risk tolerance.
If they are only comfortable with losing 10 percent of their portfolio, they’ll be invested pretty conservatively.
On the other hand, if they can tolerate a 50 percent drawdown and not bat an eye, then we can “put the pedal to the floor”, excuse the expression.
Determine how much of a loss you can stomach and that will give you a good idea of how to allocate your assets.
Related reading: Are you taking on too much investment risk?
How long will it take to adjust my allocations?
Questions regarding asset allocation, typically, pertain to risk and time horizon. For example, if you start saving for retirement when you’re 25, the majority of your portfolio will be in equities (stocks).
This allocation, generally speaking, is suitable for you for a couple of decades. At which point, you’ll probably (again, speaking generally) want to shift a little more of your portfolio to bonds.
Your allocation will, and should, shift over time, and once you get within a few years of your goal, the primary objective of your portfolio becomes capital preservation.
Related reading: Why asset allocation matters
Are my actions suitable for my current financial situation?
Financial situation takes everything into consideration (income, debt, spending, savings, etc.) Actions can be anything related to those items.
Specifically what I’m talking about is how much you are saving, how much you are spending, and how much $ you’ve dedicated to paying down debt.
If you have a sizeable amount of debt and not a whole lot of savings, it’s time to cut your spending. Conversely, if you’ve paid down your debt and are ahead of the game with your savings, it would be alright if you loosened up a little and enjoy yourself.
Like everything in life, your personal finances are a delicate balancing act, and when you ask questions, you can figure out how to shift your priorities.
How is my money being spent?
Kind of related to the last point. Tracking your spending to find out exactly where all of your dollars are going is an important step.
Another recommendation I usually make is to create a financial playbook. Here’s a brief outline of how I create a financial playbook:
- Big picture – List all assets and liabilities. How much you have saved and how much debt you have.
- List your necessary expenses – These are things that you have to pay (rent, utilities, transportation, food, minimum debt payments, etc.)
- List your monthly income
- Total up your monthly necessary expenses and your monthly income and see how much you have leftover. What’s leftover will help you discern what to do with it.
- I would list another line item for “fun,” though I would keep it to a minimum.
- What’s left after fun should be saved and used on debt.
Related reading: How to cut your spending
As I said in the beginning, questions help us understand the world, and ourselves, better.
Having a better grasp on why and when we make certain changes or do certain things is a must if we are to be more effective in managing our finances.
What makes a successful investor? Is it your ability to beat the market or to beat your competition?
In my opinion, being a successful investor doesn’t have to do with out-earning your peers or leaving the S&P in the dust. No, my definition is very simple.
Develop an investment plan using a variety of factors, and be able to execute and follow that plan indefinitely.
This is step 1. You need to figure out what your “suitability” is. Your suitability will lay a very good foundation upon which you build your investment plan. Suitability involves three things:
- Risk tolerance – This is your ability to handle drawdowns in your portfolio. If you crumble with fear every time you lose 5 percent, then you’ll probably want a fairly conservative portfolio*. On the other hand, if you have no problem seeing your portfolio drop 50 percent, then you’re ready for a more aggressive allocation.
- Time horizon – Probably the most important factor of the three. Your time horizon is basically when you’ll need the money. A long time horizon allows an investor to take on more risk because there’s more time for them to recover from drawdowns. The inverse is true for short time horizons. You’ll want to be conservative because you have little time to earn back what’d you lost.
- Long time horizon – 10+ years
- Medium time horizon – 2-5 years
- Short time horizon – Less than 2 years
- Goals – What’s your plan? Is this savings going to be used as a down payment for a house? If so, there’s probably a minimum dollar amount you have in mind and you’ll want to tip the odds in your favor that you don’t go below that. Similarly, if this is for retirement and you have 30 years to invest, you have the green light for risk assets.
Keep in mind that all three of these things, plus one other, need to be used together when determining your asset allocation. If you are tolerant of risk, but need the money in 5 years, somewhere in the middle between aggressive and conservative is probably better. That one other thing is your behavior as an investor.
The finance/investment world is coming around to this, but your psychology is a HUGE factor as an investor.
Obtaining a high return on assets is one of your goals, but it should not be the primary goal. When you create an investment plan you have to make sure it’s something you can actually stick with.
I wrote about it previously, here.
You could be tolerant to risk and you could have a long time horizon, but if you lay awake at night every time the market drops, then you need to rethink your approach.
That kind of fear and anxiety hinders your ability to follow your plan. What normally happens, is someone sets an unrealistic investment plan, one where they take on too much risk.
Thereafter, volatility picks up. They check their portfolio and it’s declined 15 percent. They wait a day and check the next.
Another 2 percent drop. Then the thought of 2008 creeps into their heads and the panic sell.
You can set up a great investment plan, but your behavior will ultimately make the decisions. Keep that in mind.
Using your suitability and behavior, you can then determine your asset allocation. The types of assets you use in your allocation can vary. If you wanted to invest a small percentage of your portfolio in gold, for instance.
The three most common assets are stocks, bonds, and cash. With risks ranging from high risk to virtually (there’s always some risk) no risk.
Speaking very generally, people with long time horizons and are more tolerant of risk, have a more aggressive portfolio. The inverse is true for people with short time horizons and a low-risk tolerance.
That said, the ultimate goal is to develop a plan that meets your goals in the smoothest fashion possible.
Ignore the noise
Throughout your investment “career” you’ll run into people, friends, family, or even random people on the street that will tell you the sky is falling or that the newest IPO will go gang-busters and you need to get in now!
Put your blinders on. There are two things that hurt investors. Their own behavior and their ability, or lack thereof, to tune out what’s happening around them.
This is extremely difficult because we, as humans, have evolved to use our peers to compare or judge, our standing in society.
Stay in your lane and focus on your goals.
Never stop learning
Every single experience in your life is a learning opportunity, especially the bad one. I recommend journaling daily, recount your day, and dig little nuggets of knowledge from your experiences.
Additionally, take in some form of content every day that improves your understanding in your line of work, or in an industry that you’re interested in.
With regard to your finances, give our Toolkit page a look. There you’ll find a number of books and resources to enhance your financial know-how.
Please be advised: Everything written in this article is for informational purposes only and should not be taken as investment advice. Opinions are my own and do not reflect the opinions of this publisher or my employer.