Money Mistakes You’ll Regret and How to Avoid Them

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“Learn from the mistakes of others. You can’t live long enough to make them all yourself.” – Eleanor Roosevelt… Ever wish you could foresee financial missteps before they happen? On today’s episode explore some real-life stories of regret and arm yourself with the essential dos and don’ts to ensure your money works for you, not against you.

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PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

Marc Killian:

“Learn from the mistakes of others, because you can’t live long enough to make them all yourself.” Eleanor Roosevelt said that, and we all certainly wish that we could foresee financial missteps before they happen, so on today’s episode, John and Nick are going to share some stories with us and talk with us about money mistakes we might regret and how to avoid them here on the podcast. This is Retirement Planning Redefined.

Hey, everybody, welcome into the show this week, as John and Nick and myself are going to talk about those money mistakes and hopefully ways to avoid those. So we’re going to get into a few of them this week. And as always, if you’ve got some questions, you need some help, reach out to the guys before you take any action on something you hear on our show or any others as it relates to your situation specifically. We all have these universal things that apply to us, but individually in the nitty-gritty is where we need the qualified professionals to really help us dissect and do the right things for our retirement. And John and Nick can be found at pfgprivatewealth.com. That’s pfgprivatewealth.com. Get yourself onto the calendar and don’t forget to subscribe to the podcast. John, what’s going on, buddy? How you doing?

John:

I’m doing pretty good. How are you?

Marc Killian:

Hanging in there. Doing pretty well. Looking forward to talking to you guys today about these money mistakes and seeing what we can do about them. Nick, my friend, what’s going on on your end of the world? You doing all right?

Nick:

Yes, sir. Staying busy.

Marc Killian:

Yeah? Just keeping busy. Well, that’s good. It’s that time of year. We are into, I don’t know, we’re right around November about the time we’re doing this, so we’ll see. The year’s winding down quick and so it’s always something coming fast and furious. So let’s talk about a few of these things so hopefully we can avoid them, especially in the fourth quarter. Sometimes we start to maybe spend a little bit more money than we realize. So let’s get into today’s conversation a little bit, guys. And I want to talk about IRA withdraws, whether it’s a loan from I guess a 401K or I know that you can’t do it from different kinds of accounts, or just taking them out prematurely. Why is this a money mistake that people might regret? Because I’ve talked to a lot of advisors and it seems like everybody universally says this is the last place to access money early if you need it. If you needed something for an emergency or something’s happened, most people seem to advise against pulling money out of these types of accounts early. Why is that? Whoever wants to tackle it.

John:

Yeah. I’ll take that one. So yeah, the main reason why you want to avoid this is it can be riddled with fees and there’s a 10% penalty. If you’re under 59 and a half, you don’t qualify to take the distribution out, so what you’re doing there, and we talked about it last week, is Uncle Sam has a liability on your money. You’re just basically giving Uncle Sam 10% of your money. And then on top of that, you’re paying taxes on any withdrawal. And if you’re already currently working, now you just actually raise your tax bracket, so you could be paying additional taxes and this is money that’s just lost. And what you’re really losing out on is the growth potential down the road. So it really is a lost opportunity cost of, hey, if you pulled out 40, 50 grand over whatever, a couple year period, well, depending on how long you were going to wait until you retire, that’s 50 grand of six, 7% potential compounding growth. That could really add up and could be a detriment to your overall retirement strategy.

Nick:

I would add to that, too, from the perspective of a lot of times, the reason for taking out the funds isn’t necessarily the best, and there could be other ways. If it’s a last resort, that’s one thing. If it’s something where it’s for an update to a house or different things like that or even certain types of debt consolidation, we’ve found that literally the money just disappears almost to the standpoint of it never gets replaced. When that expense goes away, they don’t catch back up and reemphasize savings or things after that. The money comes in quick, it feels easy, it goes out quick, and then they just move on like it never happened, so it really can put people behind the eight-ball.

Marc Killian:

Yeah. And I definitely like the point of not only is there the immediate impact, but there’s that future impact that John talked about by losing the ability to continue to grow that money for our future self. So certainly a money mistake that we could regret and why many advisors, most advisors advise not doing that and looking for some other alternatives. Let’s talk about lifestyle creep. It’s not a song from Radiohead. It’s like you get to that peak earning years, I suppose, and the kids are out of the house.

I’m there now, guys. I’m 52, the kid’s in the Navy, she’s doing well. My wife and I are doing all right, and so I’ve been splurging a little here and a little there on some extra items and we’re enjoying ourselves, but I’m also being mindful not to let it get out of control because there is that future me still waving, saying, hey, don’t forget about I need some of this money, too, when you’re 75. So you got to be careful with that. You guys see that sometimes when folks get to this age where they’re like, hey, I’ve worked really hard. I’m going to treat myself a little bit.

Nick:

Oh, yeah. Definitely we’ll see that. And we always joke with people that we’re not the money police and we’re not here to tell you that you can or can’t use your own money or those sorts of things, but to just show you the repercussions of decisions, both good and bad. So those years in your fifties where you’re able to save really make a big difference. And so sometimes we’ll even phrase it like, okay, well, maybe you’re going to splurge on a certain type of vehicle or a second home or something like that.

Marc Killian:

That’s big splurging. Yeah. Wow.

Nick:

Yeah, yeah. So what can we do from the perspective of, okay, a little bit for you now and a little bit for you later sort of thing. Because sometimes it’s as simple as, all right, let’s just start an automatic deposit into a separate account and at least force it. Let’s see how it feels. Because a lot of times people will adjust to having a little less take home income or they’re used to having a certain amount of money in the bank and maybe it’s substantially higher than it was five or six years ago, and they get almost addicted to looking at it, and now it’s like, all right, well, you’ve reached that. Now let’s deploy some of what we’ll call the new money elsewhere and start to save it to try to make up for that creep a little bit.

Marc Killian:

Yeah. It’s all about balance. And of course, John, I was talking about just buying season hockey tickets and he’s talking about buying an extra house. But either way, it’s all about finding that balance so that you don’t get that lifestyle creep out of control a little bit. And John, I’ll throw this one at you since you’ve got the little ones there. Another one of the big money mistakes people are starting to really wake up to is I paid too much for my kid’s tuition and I can’t finance retirement. So I told my daughter this. When she was 20, I was like, all right, you need to get your stuff together because you ain’t staying on my couch forever. And besides, you don’t want me on your couch whenever I’m 70 and you’re in your forties or whatever and you’ve got your family and you’re raising your kids and I’ve had to come live with you because I gave you too much for college, or I helped you too much along the way. It’s got to be about balance on this as well, I would think.

John:

Yeah, yeah, a hundred percent. I think most parents, they want to provide obviously as much for their kids as possible.

Marc Killian:

Of course we do.

John:

They’ll say, oh, I don’t want them to have all these student loans coming out of school. I just want them to focus on school. But a hundred percent. You can’t go at 59 and a half or 65 and say, hey, I need a retirement loan. That’s not an option.

Marc Killian:

The only choice there might be maybe a reverse mortgage, and that’s the conversation of the day.

John:

Right, exactly. So you don’t want to catch yourself in a situation where it’s like, hey, in your high earning years, you’re really, hey, let’s help out with school. And then all of a sudden they’re done and you look at your nest egg and it’s like, wait, I got to work extra or I have to adjust my lifestyle. And you really back yourself into a corner. So there’s other ways to go around it. Maybe they do take out a student loan and once they graduate, maybe you assist them in paying it back, but at least you have that option to really adjust it to your situation.

We’re talking about mistakes and how to avoid them. What you especially want to avoid is backing yourself into a corner at the 55 plus age, because that’s a lot of times where you’re a high earner and companies might look at it and say, hey, we need to downsize. I’ve had a few clients where late fifties, early sixties, and they’re looking at it like, hey, I got to go find a job somewhere. And they weren’t planning for that. So you definitely want to leave yourself flexible to adapt to any situation that’s going to come up.

Marc Killian:

Yeah. Since I was talking about hockey a second ago, we’ll use that as an analogy. You definitely don’t want to have two guys in the penalty box, two of you in the penalty box, and have it be a five on three because it’s just going to be a little rough right there. So making sure that, again, balance is going to be the key, right? Making sure that you can handle helping the kids without sacrificing your future. And they don’t want you to do that either, ultimately.

At the moment they feel like they do because it’s great to have mom and dad help, but when it comes back around years later and they have to help you, they’re going to really regret that decision as well, so that’s why we’re trying to highlight some of these areas for you to avoid. And Nick, I’ll toss this one to you. Similar in a way, but instead of helping your kids, you’re helping yourself because you chose to retire early. And if longevity risk is the great multiplier to all the other risks we face in retirement, and that’s just the years we live longer, I would think that retiring too early is almost like longevity risk on steroids.

Nick:

Yeah. I think the retiring too early thing is usually if there’s a really strong plan, meaning financial plan, retirement plan done, I think we feel pretty comfortable with the level at which we do plans and give people just input on, hey, we feel comfortable with you retiring. We don’t feel comfortable with you retiring. But for example, recently, a new client, somebody that is going to retire a little earlier than maybe is considered typical reviewed the plan that they had been working off of the last maybe 5, 6, 7, 8 years, and the rate at which the plan had expenses dropping for the client jumped out to me as a red flag.

And so it’s not only from just a standpoint of, hey, in theory it doesn’t make sense to retire too early and all these different things, but also just showing the importance of second opinion or the importance of the plan, importance of inputs in a plan where in our opinion, cutting expenses by 50% between 70 and 80 is a pretty tricky thing and can be very misleading with the security that you feel with your plan. So yeah, things like drawing down the money too early, whether it’s taking Social Security too early. Those increases that people have gotten in the last three, four years in Social Security, especially those that have waited are going to make a really substantial difference because they’ve been so high, and just anybody that took those real early and locked in those gains on much lower numbers, they’re going to feel it 10, 15 years down the road.

Marc Killian:

Yeah. I don’t have the exact data in front of me, but I just saw something not too long ago that talked about waiting three years, just three years to retire, delaying it three years, made some crazy number difference in the math for retirement. It was pretty wild. I’ll have to find that. We’ll have to talk about that on a future show, but it was pretty interesting, just the massive difference that it can make. So certainly important. Hey, if you want to retire early and the numbers bear out, cool, but just I think that’s the point. Run the numbers. Make sure that you truly can pull the trigger and retire early so that it doesn’t bite you along the way.

Because you certainly don’t want to get to 80 and be like, oh, okay, now I got to go back to work. That wouldn’t be good, so let’s not do that. John, let’s talk about the last one here. I want to have you chime in a little bit on different taxable buckets. We were just talking a couple of weeks ago about kicking the can. We’re so used to it. That’s what we’ve been taught. Pumping into a 401K, defer, defer, defer, and many people, if we’re talking money mistakes again, is I didn’t really explore other tax buckets and I regret doing that. So maybe it might’ve made more sense to look at Roths, for example, or something else.

John:

Yeah. Going back to our last session, this is when you look at your nest egg and you say, wait, Uncle Sam’s getting about 15 to 20% of this, and you realize, hey, I should have done some Roth money. But yeah, that’s definitely something. We see a lot of people going into retirement where Roths weren’t too popular really 10 or 15 years ago, and 401Ks, that is, and now it’s more popular, so more people are doing it. But definitely right now, we’re seeing a lot of people where most of the money’s pre-tax and they’ll go into retirement and realize how much they’re paying in taxes and just saying, hey, I wish I had some tax-free money to really help the burden of the taxes I’m paying. And again, the tax rates could change, so just being able to adjust and pivot depending on what’s happening.

Marc Killian:

Yeah. I definitely think that it’s something worth investigating, having a conversation, but there is some things they have to think about, too. So I know it’s been the hot topic lately to talk about we’re doing Roths or conversions, Nick, but if you are considering doing so, make sure that this is also money that you’re not going to need to access right away because there is a five-year hold, correct? If you’re converting?

Nick:

Correct. Yeah. So if you’re going to implement conversions into your overall strategy, it’s really important to have it road-mapped out because we’ve seen people that have converted too much or converted money that they expected to be able to use within that five-year window, and then it defeats the purpose. And or maybe they don’t have money outside to be able to pay the taxes. So yeah, it’s really important to have a broad-based strategy when you’re looking to do that.

Marc Killian:

Yeah. Because I know it’s been a hot topic and a lot of people have been really pushing the importance of getting money, paying the taxes now at the lower rate that we’re in, because we’re all pretty sure the tax rates are going to go up, yada, yada, yada. And so it’s been a big focus, but don’t just get sold on it because it’s the thing, and then all of a sudden, to your point, someone’s saying, hey, I got a million bucks. Let me start converting all of it because you’re going to jack yourself up in tax brackets that way, too. So there has to be some strategy to that as well. Just like everything in finance. Make sure that you got a good strategy in place for all the different pieces, the income side, the taxation side, Social Security, all those pieces need a strategy to them in order to be effective and working together within that strategy.

So if you need some help, that’s what the guys do day in and day out. Get yourself onto the calendar. Or if you know someone who’s in a situation that does need some help, share the podcast with them. Let them know to reach out to them or just stop by the website, jot this down. Pfgprivatewealth.com and share that with those that might benefit from the message. Pfgprivatewealth.com is where you can find John and Nick, financial advisors at PFG Private Wealth. And don’t forget to subscribe to the podcast, Retirement Planning Redefined on Apple, Google, and Spotify. Guys, thanks for hanging out. Nick, buddy, I appreciate you as always.

Nick:

Thanks, man, and enjoy your hockey.

Marc Killian:

Absolutely. Going to do that, and to your mom as well. She’s a new big fan as well. So go hockey. And John, my friend, I hope things are going well for you, and thanks for hanging out, buddy.

John:

Yep, have a good one.

Marc Killian:

Yes, sir. We’ll see you next time right here on Retirement Planning Redefined with John and Nick.