The Ides of March commemorate Julius Caesar, the Emperor who significantly expanded the Roman Empire only to meet his demise by a conspiracy carried out by his own people. Just as Caesar’s fate turned to misfortune as a result of his tragic flaw, we see people who are their own finances worst enemy. If you’re making these retirement planning mistakes, it’s best to seek counsel before the bright day brings forth the adder.
Making emotional decisions
In our decades of experience, we’ve seen examples of perfectly rational, logical people who make emotional decisions that lead to their finances becoming compromised. Unfortunately, being called in to be the independent voice of reason after the fact can be a step too late.
A common emotional trap that people run into when managing their own money includes holding on to investments or an inherited position for nostalgia reasons. This can lead to dangerously undiversified portfolios.
Timing the market
Very few people get this right. Most of the time, trying to sell at the top of the market and buy when the market has dipped creates more trouble than it prevents. Even professional money managers can’t successfully time the market.
You should choose an advisor who will balance your needs for principal protection, income, and growth against market conditions. This approach, rather than one of reactive trading, is the best way to create long term growth.
Being house poor
Buying a house that is beyond your means is a common retirement planning mistake.
The Canadian dream can turn into a nightmare if you’re living beyond your means with your real estate. People’s eyes being bigger than their wallets turned against us a decade ago when the real estate bubble burst. It’s happening again. Some families are still getting themselves into trouble by spending beyond their means, incurring too much mortgage debt, and limiting their financial flexibility.
Several years ago, we worked with a couple who continued to maintain a poorly performing rental property because they had already sunk so much money into it. They also kept holding on to it for sentimental reasons. We evaluated the property and had them make a realistic outline of cash flows, demonstrating how it affected their tax planning and retirement goals. This helped them make a difficult choice in a more informed and prompt manner.
Cash flow and budgeting are just one part of financial life planning. A complete strategy should be designed to help you with all aspects of your financial life, not just house purchases.
Not enough insurance or estate planning
Everyone with dependents knows that they need to manage the risk of an untimely passing, but very few people actually wind up with the right amount of insurance protection. This is because many insurance advisors are not diligent in conducting an analysis prior to selling the insurance. People often have way more or, more commonly, way less than they need. One of the important parts of how we work together with clients is our insurance analysis. Your advisor should go through such an exercise with you as part of your planning.
We also help clients work with an attorney to draft will or trust documents which make sure their dependents are taken care of correctly in the case of their passing. People tend to shy away from this as nobody likes to think about dying. It can also be a bit intimidating to work with a lawyer. We help our clients navigate this challenge and put a will or trust in place that will last throughout time.
We had a client a few years back who was having difficulty with their estate planning because they had accumulated various residential properties over the years and had a hard time deciding how to fairly transfer ownership to their children while limiting any cause for infighting or resentment. We conducted several meetings to help the client get a clear picture of what they wanted. Then by encouraging open family meetings and collaborating with a qualified estate planning attorney, we were able to set up a plan that will appropriately handle the future ownership and management of their properties.
Working with the wrong planner
In our experience, working with the wrong planner or no planner causes some things to end up slightly wrong, while other things end up totally wrong.
We recently worked with a married couple that had been sold several different annuities and life insurance policies over the years. The products were not managed after they were sold, and the commissions had been paid. These annuities and life insurance no longer served a clear purpose that the client understood.
We helped evaluate the merits of each annuity and insurance policy; we showed how they fit into the clients’ plans and what alternatives were available. Afterwards, we assisted the client with replacing and surrendering their expensive annuities; we also helped them fit their life insurance into a broader estate plan.
As this example illustrates, commission based salespeople can burn you and lock your money into high fee products that aren’t in your best interest. We recommend that you hire financial life planner who works only for you, not for a financial institution. Such a professional should be committed to a systematic, detailed, and integrated process.
Some people can do a decent job of managing their own finances but most of the time it takes a qualified professional to really do them justice. In our experience, we’ve found that most people who try to manage their own finances lack the time to pay attention to all the details. It takes just one beneficiary designated incorrectly to spoil an entire estate plan. It takes one incorrect tax move to ruin an entire decade of tax efficient investing.
The bottom line
Even if you want to be in the driver’s seat, you should at least have a Plan B who can step in if something were to happen to you. And you should regularly consult with this person to get a second opinion to ensure that you’re not making any major mistakes.
The Ides of March happen once a year, but poor financial decision making is unfortunately present in the lives of many all year long. If you would like to know how well your decisions align with your long-term goals, reach out for a fiduciary review of Keeping Life Current.
