Costly Retirement Mistakes To Avoid Before It’s Too Late

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The Smart Take:

📉 Mistake #1: Investing the same way you always have
💰 Mistake #2: Taking too much risk trying to “catch up”
📊 Mistake #3: Not measuring progress against your plan
🧾 Mistake #4: Ignoring tax planning opportunities
🕰️ Mistake #5: Claiming Social Security without a clear strategy

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The Hosts:

Kevin Kroskey, CFP®, MBA – About – Contact

Tyler Emrick, CFA®, CFP® – About – Contact

Episode Transcript:

Tyler Emrick:

Most people think the biggest threats to retirement are a stock market crash or a major life event, but in reality, it’s often the smaller decisions, the ones we didn’t know were mistakes that slowly chip away at our retirement plan. Today, we’re diving into a few of the more common and fixable mistakes that we see from people at or near retirement and how to avoid them before they cost you.

Walter Storholt:

Back for another episode of Retire Smarter, I’m Walter Storholt alongside Tyler Emrick, Certified Financial Planner, a Chartered Financial Analyst, and one of the wealth advisors at, of course, True Wealth Design. And we’ve got another great episode on tap today, and I’m excited about this one, Tyler, because it’s not quite as exciting as our Warren Buffett episode, perhaps, but it’s an important one because so many people might do great their entire financial lives, and then they make some one big mistake right at retirement and kind of messes the whole thing up. It’s important to avoid these things that we’re going to talk about on today’s show.

Tyler Emrick:

Absolutely. I don’t know how many times, or at least maybe my searches are a little bit different over the internet, but all the time I’m coming across the top five mistakes here. Top 10 things to be aware of as you approach retirement. This is kind of our approach of saying, “Hey, we’ve seen all those two. Let’s kind of pile them in and kind of put them into a list that we feel maybe are the important ones, or maybe do our own kind of top five.” And certainly, we’ll beg, borrow, and steal from all that content and try to synthesize it for you here today.

Walter Storholt:

In our line of work, when you get those recommendations on your phone of articles to read, you’re just flooded with all of those exact ones you’re talking about. The five worst X, Y, and Zs in financial planning.

Tyler Emrick:

AARP is definitely on my search history and some random ones that you wouldn’t necessarily think should be.

Walter Storholt:

That’s right. That’s right. I need to get a second phone or something, one that’s disconnected from the financial world, just so I can see what a normal person sees in their recommendations.

Tyler Emrick:

Yes. Actually, and my ads, when they’re popping up, they certainly can target those. Boy, they got that down to a tee, don’t they?

Walter Storholt:

Yes.

Tyler Emrick:

It’s amazing. Certainly our phones are listening, and computer searches are being monitored, for sure, or at least the ad agencies are looking.

Walter Storholt:

To all of our listeners and our viewers, more on that in a second. We will get into the meat and potatoes here in just a second. But, hey, this is actually a little bit of news this week, Tyler, to share with folks. We are on video now. If you are a longtime listener of the show on Retire Smarter on your favorite podcasting app, but you have always thought, man, it would be great if this was on YouTube, and I had a video version, well, now it is. And to our new audience on YouTube, welcome to Retire Smarter. We’ve been around for a really long time in the audio world, but now we’re kind of joining the ranks of the video crew.

And to all of our new YouTube folks, you’re going to be really excited to hear from Tyler each week, and Kevin when we can wrangle him in here, because they’re just going to be excellent at giving you clear, well-thought-out, and some detailed financial guidance. This isn’t your normal financial show. Here on Retire Smarter, we try to really do that and learn a little something on each and every episode.

Tyler, it’s great to have you on the video finally, and I hope some of our audio listeners will come check us out over here too.

Tyler Emrick:

Please. Absolutely. On YouTube, happy to do the videos, and we’ll see how it goes. But excited to be here, for sure.

Walter Storholt:

Everything should still stay pretty audio-friendly, for those of you who like listening on the audio side. Every once in a while, we may share a graphic and something like that. If it’s ever something important that you need to visually see as well, we’ll include a link to perhaps that graphic in the show description so you don’t get lost on the audio side of things. But we’re excited for this new audience.

Well, enough of that, Tyler. Let’s dive in and find out a little bit more about these worst money moves near retirement.

Tyler Emrick:

No, absolutely. And a lot of times when you kind of think about these mistakes and how they come up, I think we can really be focused on some of the major complex decisions that we know are going to have some major ramifications throughout retirement. But oftentimes, it’s some of the smaller or maybe less complex decisions that are just made maybe on a whim or maybe not as much thought being put into them that can really add up over time. Especially as you start to think about just how long you might be in retirement, we can have some pretty long runways here from 30, 40 years out in some cases. These decisions, when we think about the compounding effects of them over time, can really add up.

And certainly when we start thinking about just some of the mistakes that our guests allowed … You know when you buy the wrong car, and you overspend on vacation? Oops. I got a little overextended there. That’s something I think is a little easier for us to wrap our arms around. But some of the other ones, especially when it comes to retirement planning, are more maybe on that quiet nature. And sometimes we just, again, don’t really fully quantify the ramifications of some of those.

As we kind of go through and think about just the structure of today and how we’re going to handle these, I really had that in the back of my mind, thinking what are maybe some of the more subtle decision points that maybe aren’t so in your face as you start thinking about nearing retirement and maybe in those early stages of retirement? And how can you be best suited to make sure those decisions are on their radar? Now, I have one that kind of comes up on every list that everyone’s going to be like, “Hey, that is not that subtle.” I get it. There is one on there. And you’ll know exactly when we hit it. It’ll be probably one of the last ones we talk about. But all the other ones here certainly are hopefully something that maybe isn’t completely top of mind. Or if it is, great, you’ve done some great research, and you’re on top of it, which is always good, but-

Walter Storholt:

Sounds to me like it’s really a matter of attention. If there’s something that’s hurting me physically, if it’s painful, I’m going to go to the doctor and get it fixed right away. But sometimes it’s the subtle things that we push to the side. It’s the nagging thing. It’s the, “I’ve added a couple of pounds, but it’s not really hurting me, so I’m not going to really give it that much attention,” but that’s the thing that sneaks up on us and gets us. I see some good parallels here to how you’re going to tackle some of these financial things-

Tyler Emrick:

Come on, Walt. You-

Walter Storholt:

They’re not too loud, right? They’re not beating down the door, but yet they’re a problem.

Tyler Emrick:

That’s fair. As we do our first video, and we talk about poundage and putting on a couple extra pounds, and I’m now on YouTube video, I appreciate that analogy and what you’re doing there-

Walter Storholt:

Now, you’re all cognizant of it.

Tyler Emrick:

Hey, fair enough. Exactly. I’m peeking over, checking myself out, going, man, all right here. But try not to judge too much here. But no, you hit the nail on the head, for sure.

Walter Storholt:

We can lower the resolution later if we need to to kind of fuzz things up a little bit.

Tyler Emrick:

That’s great. That’s great. Maybe we’ll have to do that.

But a list. I think we’ve got a handful of them here, and certainly I’ll kind of sprinkle in some of the other ones that I think that maybe came up through some of the data and some of the research. Maybe we’re not going to speak specifically to of them, but they’re somewhat related to the topics that we’ll discover. We’ll see where it takes us, and we’ll kind of go from there.

But the first mistake or mishap that we want to kind of talk about today is this idea of investing the same old way. And well, of course, I believe in the KISS theory, right? Keep it simple, stupid. And there’s no reason to be adding complexity when it’s not justified. But we want to be mindful of oversimplifying and understanding how our investments relate to where we are at in life.

The comment that came up in my research that I want to share that I thought was pretty impactful, and I believe it wholeheartedly, is this idea that when you do retirement planning right, you’ll know specifically how much money needs to come out of which account and what year. How does that relate to investments? And what am I getting at here? Well, what I’m getting at is this idea that, if we’re doing retirement planning right, and we know where our money is going to come from in retirement and from what accounts, that’s great, but what that kind of triggers is this whole idea that there is going to be a change of how you’re going to use your wealth and how you’re going to be using those retirement accounts. And that in itself, when we go through these life events, or we go through these changes, it’s going to be always good to take an inventory and account of, well, are the investment strategy that you’re using working in conjunction with those changes? Or do we maybe need to reevaluate that change?

If you’re sitting here today, and you’re going, “Well, hey, I’m not on the doorstep of retirement yet,” or, “I’ve been working all my life,” you probably haven’t thought about, well, which account am I going to pull from to use? Got your paycheck coming in. Now, you might be, “Hey, is my paycheck going to be there? And how do I want to navigate that?” and focus on your career and all that other good stuff, but you’re not necessarily specifically thinking of, well, hey, should I pull from my Roth account? Should I pull from my IRA account? But as you start transitioning into retirement, and you’re no longer working, well, that becomes a very big piece of the overall pie. And plan on, well, how do we make these decisions in conjunction with everything else that’s going on in your financial life? Investing the same old way as you were as you were working career might need to be adjusted and might need to be changed.

And we can take that down to a pretty granular level. The examples that we ran across quite a bit as we’re prepping for the podcast were this whole idea of, well, hey, if you start beginning distributions in retirement from your IRA account, and maybe you’re doing that with Social Security, and that’s what you’re going to live off of on a monthly basis, that’s pretty common. But as you’re kind of sitting here listening, if I asked you to count up all the retirement accounts that you have or all the different accounts that you have, well, some of you might be counting for a while, especially if you’re married, and you have to account for spouse’s accounts too. You might have a 401k, an IRA, a Roth account, a savings account, a checking account. The list can go … Well, we can get quite a few accounts that are spread out there, especially if you think about your career-

Walter Storholt:

Especially if you move jobs and all that kind of stuff.

Tyler Emrick:

You nailed it. Absolutely. You start to think about, well, should my IRA that I’m pulling money from to live off of be invested the same way as my Roth account? Well, maybe not. You think about the differences between an IRA and a Roth and what they do. Well, there could be an argument to be made that you should have your higher expected return investment allocation inside of your Roth account because that growth would be tax-free. Over time, right?

Walter Storholt:

I see what you’re saying-

Tyler Emrick:

The more money that you could potentially earn in there … Would we want that to be in our Roth, or would we want that to be in our individual retirement account? We call that asset location. I know we’ve talked about it in the past here on the podcast, but a lot can stem from how you’re using your accounts and the investments that you’re putting inside of them. Again, probably not something that you are maybe thinking about. Or if you are still working, maybe you should be thinking about asset location. Certainly, that could be helpful.

But as you start thinking about distributions in retirement and how those assets are invested from the account you’re pulling from, there are some considerations to take there. And as you start thinking about just, in general, how you’re managing your finances or if you’re working with a financial advisor, we kind of see it all the time where financial advisors might be helping you with one account, but they’re not maybe helping you with another, or they might not know how those other accounts that you have are invested. And as you start thinking about retirement, that can be a bit of an issue as you start thinking about maximizing expected return or maybe your tax situation or whatever the case may be because they’re all going to work in conjunction together.

Walter Storholt:

There’s probably this natural inclination, Tyler, to … At least I feel this. To treat each portfolio where each item, a 401k or a Roth IRA or whatever they might be … To treat them very much in their own island. I’ve got to be balanced in this account. And then the next one. I’ve got to be balanced in this account. And without even really thinking about it, you’ve kind of made them all the same. And I kind of see the light bulb going off, at least in the mirror reflection of myself here, of you could make the Roth one where you take more risk and then make a different one where you have less risk because I might want to have the higher growth in that Roth account for those reasons that you mentioned, so let’s look at this thing as a whole, and it might turn how you invest totally upside down.

Tyler Emrick:

Correct. Well, and there’s other … Some of the things that we talk about all the time here on the podcast where secrets of return risk or doing withdrawals during volatile markets where if the stock market were to have a pretty major pullback, depending on how the account that you’re doing distributions from, if they’re all invested in stock, and you’ve seen that pullback, well, now you’re selling out of those stocks that are kind of depressed and maybe at a lower value. They really all-

Walter Storholt:

These things matter on the way up as well as on the way back down or the accumulation in the distribution phases.

Tyler Emrick:

I think they become extremely important, especially near retirement or as you’re in retirement. Now, as you start thinking about … Because you’re pulling from the accounts. The distributions.

Now, on the flip side, we talked about a concept of asset location. I think asset location is a core principle for any age. As you start thinking about, well, where are you saving your money? How should each account be invested? That asset location and tax consequences of those investments, I think, have major ramifications as you’re starting to build wealth. But on the back side of it, as we’re starting to think about retirees and distributions, I think it just gets magnified a little bit there. But I think it’s good practice, especially the asset location, for really any listener that’s trying to apply this situation of, “Hey, how should I be thinking about my investments, and how should I be maybe adjusting my investment strategy based off where I’m at in life?” and some of the challenges or changes that are facing you. All good stuff.

And the other thing that I think came up quite a bit that I kind of want to speak to because I hear it a lot, is this idea of … Time and time again when I’m sitting down with retirees, and we start talking about investments, and we try to start wrapping our arms around, what is going to be that investment strategy? How do you start thinking about investments, and how are we going to apply it to your specific situation? I get a lot that, “I’m conservative. I’m conservative. I’m conservative,” especially, “Hey, I’m heading into retirement. I probably need to be conservative, don’t I?” And generally-

Walter Storholt:

That’s the old way that’s been ingrained in our brains for so long.

Tyler Emrick:

It has, right? And the premise of that. And I think it comes back to some of these major risks of sequence of return risk where you retire into a bad market, and you lose, and you’re pulling from those accounts. I think it stems from a lot of that, but I also would argue, as you start thinking about, well, I’m conservative, what does that really mean to you, being conservative? How does that kind of shake out into your portfolio construction and how you think about your investments and your wealth? Does that mean that you can’t lose any money? Does that mean that if you lost 200 grand, you’d be perfectly fine? Let’s put some dollars and cents to what it means in your case to be conservative and then apply that to your financial plan to help you kind of back into investment strategies that’s not going to get you into an uncomfortable situation to where you would lose an amount that’s uncomfortable but fits and is going to work within the plan to get the rate of return that you need and all that good stuff.

But this idea of, “Hey, I have to be conservative,” doesn’t necessarily apply to every individual or every family that kind of comes through the door saying, “Hey, I want to start looking at my retirement plan. And can I retire?” It certainly needs to be a piece of it. And I think in past podcasts here recently, we’ve talked a little bit about that idea of runway. And when you think about your overall household allocation, how much of it is in more conservative investments that maybe have a little bit less volatility, and how long could you pull from those investments before you would actually have to start selling out of stocks if we were to experience some major market volatility?

I think it all goes hand in hand, but I wanted to make a special comment of this whole idea of, “Hey, I’m conservative, or I need to be conservative in retirement.” That could be the case, but it’s not necessarily a blanket statement that is applicable to every individual or every family kind of listening to the podcast today. It’s going to be very specific to your situation and how you want to apply it.

Walter Storholt:

That’s mistake number one, investing the same old way, but your comments about getting conservative as you get close to retirement are interesting because it dovetails nicely into your second mistake on the list here. And that’s where people kind of do the opposite, and they want to take more and more risk as they get close to retirement. And I guess the reason is they’re feeling maybe behind. Playing catch can be a dangerous game.

Tyler Emrick:

You got it. And it’s big for these near-term retirees. The catch-up comment that you made is exactly right. And I think where it potentially stems from, too, is there’s a lot of goods resources online and tools and calculators and things like that. And when you get down into some of them, they can kind of, I think, teach maybe a little bit of incorrect theory where you start looking at your spending, and you start projecting it out over the next 30, 40 years to kind of replicate your retirement to say, “Hey, do I have enough?” Sometimes those tools and calculators can basically solve the return equation for you and say, “Hey, this is the rate of return that you need to get on your plan to make all that spending work.” And I do think that is a valuable number, but then you also need to take it one step further and say, “Hey, is that a realistic return expectation for the way that I have my investments allocated right now?”

It might be simple to say, “Well, stock market S&P 500 averages around 10% return per year. To make my plan work, I need 10% return per year. I’m okay. I can get it by just putting it all in stock.” Well, not necessarily. You start thinking about maybe taking on that much risk and one you’re not emotionally comfortable taking on that much risk. You see your accounts lose real dollars, like in 2008 or March of 2020 when COVID came on the scene, and stock market dropped by 30% in one month. If you lost 30% of your assets, 300 grand, for someone who has $1 million saved, that’s real dollars and cents. It’s very easy to be able to be like, “I can go through that. I’ll be fine. I won’t be calling anybody or is trying to sell out or making any emotional decisions.”

But then when you’re in the thick of it, and it’s really happening, and you’re getting inundated with these headlines, and you’re seeing your accounts go down, well, it could be a very different story. And you kind of think about that in the framework of, well, not only the emotional aspect of it, but then what that can do to your overall plan if you were to experience something like that. Again, that’s called sequence of return risk or retiring into a bear market. When I say bear market, think just rough stock market performance over maybe a year or two. Think of 2008 when we went through the great financial crisis. Could you imagine saying, “Hey, that’s when I’m going to hang things up. I’m going to retire,”? And then, boom, you see your accounts kind of dip by that much.

Before you would make a decision to say, “Yep, I’m just going to kind of shoot for the stars. I need to get that rate of return. I’m going to try to catch up,” you need to kind of look at it from the other side and say, “Hey, what happens to my plan if I experienced a 30% drop or 20% drop in my assets? What does that do to the plan? How much longer would I have to work? How do I have to change my spending?” And are you comfortable with that flip side and the emotional aspects of trying to manage through something like that? Because it can be very difficult.

Walter Storholt:

All I know is that those retirement calculators … They can be great to just get kind of a quick guess or a quick way to start the conversation. At least gets you thinking about the right things. But, man, you can type stuff into there and have outputs that make you feel really nervous. Go, “Whoa. I’m-

Tyler Emrick:

You can’t.

Walter Storholt:

… way behind.”

Tyler Emrick:

Yes.

Walter Storholt:

Or the opposite. Maybe give you a false sense of security, but it’s just really hard to get those simple calculators to take in all the information they need to truly spit out an accurate plan and one that takes into account all of your individual needs. And that’s always where I see that big difference in working with an advisor and a professional to help really paint the full picture rather than just getting little pieces of it.

Tyler Emrick:

No, absolutely. And because I kind of put a button on this whole idea of maybe taking on too much risk to make up for lost time in your investments. At the end of the day, you just want your investment allocation to be intentional and controlled, not necessarily a Hail Mary to try to catch up and kind of hit it big or maybe get one of these big stock picks to try to change your wealth situation.

Intentional and controlled, I think, is kind of the name of the game. And the more information that you have to be able to make those better decisions is going to produce, I think, better outcomes in the overall. If you feel comfortable getting that information, great. If you don’t, hey, that’s where an advisor should be able to step in and help paint that picture and run some of those different scenarios and help you kind of zero in and get down to a portfolio that is going to not only accomplish your goals from a retirement plan standpoint, but also not get you into a situation to where you can’t sleep at night, or you are calling, saying, “Hey, I’ve lost too much, and I need to sell out,” because we all know that that’s kind of the worst place that you can be in.

Walter Storholt:

Hail Marys and football sometimes work because you have nothing to lose. You’re already losing the game. That’s not the case in retirement planning. You’re not necessarily losing the game, and so a Hail Mary can have worse consequences. It definitely differs in that way, so let’s not use that as a strategy.

By the way, if you’re watching today’s episode or listening, of course, on your favorite podcasting app, and you’d like to talk with an experienced advisor on the True Wealth Design team, you can do that very easily. You can click the link in the description of today’s show where that’ll take you to the True Wealth Design website, truewealthdesign.com. Just look for the Let’s Talk button, and you can schedule a 20-minute discovery call with an experienced advisor. Again, that’s at True Wealth Design, and it’s in the description of today’s show.

Tyler, two great mistakes we’ve covered so far. What’s next?

Tyler Emrick:

Investment-focused mistakes, let’s say. Let’s maybe shift gears a little bit and kind of go more into the planning side of things. And this is the concept-

Walter Storholt:

More granular, if you will. That’s one of your favorite words, I’ve noticed, over the years.

Tyler Emrick:

It is. It is. I got a few of them.

Not measuring progress against your plan. Key mistake number three. Not measuring progress against your plan. And really, as I think about the families that we work with on a year-in and year-out basis, a lot of what we’re doing is we are looking back on that prior year and tracking and saying, “Hey, what direction are you moving?” Right? “Are things moving in the right direction? Did we have some setbacks? And what changes, if any, need to be adjusted as you start thinking about your investments, as you start thinking about your spending approach, and some of the upcoming spending that’s maybe coming up?”

This whole idea of, “Hey, let’s do a financial plan. All right, I’m in good shape, I can retire, and then let’s kind of set it and forget about it and not look at it again,” could have some pretty drastic consequences. Life happens. Things come up, and you need to make sure that you can be nimble and adjust with those as they do.

And I think a good financial advisor … Or what we try to accomplish here is we try to take a lot of that heavy lifting off of you, not necessarily that we’re getting into the spending that you’re doing, going out to eat every weekend, and getting a very detailed budget, but there are ways where we can essentially, especially in retirement when we have very controlled distribution strategies, and we understand where your income is going to be at in a particular year, and we’ve kind of built this financial plan with an idea of spending in mind.

It’s very easy for a financial advisor to kind of look back on that prior year and say, “Well, how did we do? Did the investments earn more or less than what we expected to inside the plan? Did the distributions cover all the spending, or did we have to go back into our plans and kind of pull out more than what was expected?” That way, you can look back and adjust the game plan going forward and not necessarily get yourself in a situation to where 10, 15 years down into retirement you kind of look at your account balances and go, “I’m at a different spot than maybe what I expected to,” because of a whole host of reasons as life kind of comes up.

But this idea of measuring your progress year in and year out, I think, is an integral part, especially early in retirement as you’re trying to get an understanding of, well, what is your lifestyle going to be like? Where are you going to be spending your time? What’s your spending going to look like? Some of the best-laid plans for pre-retirees can kind of change on a whim one, two, three years into retirement as you start to get a better understanding of just what makes you happy, where your money is going to be used, and what you’re going to be doing as you kind of shift gears from your career and working into what retirement life looks like. Right?

And I think this can work both ways. Well, and I think I’ve been kind of focusing maybe on the negative of, hey, running out of money or some negative things happening to your plan and getting into an uncomfortable situation, but it could just as easily work on the flip side, and I think you even mentioned this a little bit earlier in the podcast where you’re just spending too little, or the plan gets better and better and better, and you’re not necessarily using some of that excess the way that you would if you were on top of it and seeing that the plan was working and see that it’s getting better and going, “Well, hey, do I really want to leave that much to the kids?”, or, “Hey, would I be taking more vacations now or do that home renovation?” or whatever it is.

Walter Storholt:

It might be lost opportunity, right? “I could have gone to visit my kids two more times a year if I had been more accurate with my planning. Instead, I ended up with all of this excess.” And so if you’re not tracking your progress, which is easy … It sounds like that’s an easy thing to do and no-brainer, but a lot of people probably don’t do it and run into these problems. If you’d been tracking it, you could have made that adjustment and had more family visits, more family time, potentially, if that was a goal.

Tyler Emrick:

I think it is easy to do, but it also takes a lot of time. It’s a lot of conversations, I think, between a client and an advisor to work through. What does that cadence look like? The client gaining confidence that the plan is going to work. And, “These numbers are right,” and, “Hey, this isn’t just some pie in the sky success rate or safety margin,” or whatever. What are these things? Right? And as you-

Walter Storholt:

But like anything else in life, we would track it, right? If I’m trying to lose weight, and I’ve got a plan I’m following, well, I’m going to weigh in and see if that plan is working or not. Otherwise, I need to change and try something different. But for some reason, people don’t apply the same thing to retirement planning.

Tyler Emrick:

Absolutely. No, agree wholeheartedly. And I think that’s a big piece of what we do on a year-in and year-out basis. We call our yearly meetings progress meetings, but they’re essentially that. What has been your progress? Where are you at? And what adjustments need to potentially be made in the plan, if any, to make sure that we’re staying on top of it?

One of the studies that came up and a few of the top fives or top 10 mistake lists, as I was kind of looking through them, was a study by BlackRock. Big name in the industry. And they found that retirees spend about 30% less than what their plans would allow for because they just got kind of fear of running out of money or not confident inside the plan.

Walter Storholt:

That’s not [inaudible 00:27:50]-

Tyler Emrick:

30% is pretty big. It is, but it does kind of get down to the crux of a lot of individuals when they first step into retirement. It’s not like they’ve done it before. It’s not like they’ve maybe used some of their accounts or done these withdrawals strategies. It’s a big change to go from saving all your life and working to spending and not working.

And sometimes I think that change can be maybe assumed to be a little bit easier than what it actually is. And anytime things are a little bit unknown, we’re going to … A lot of times, they’re on the side of caution and make sure that these safety margins and these net amount at the end of your plans are big, bold numbers. We communicate plan results in a few different ways, one of which is success rates. And success rates are just a way for us to kind of say, “Hey, we’ve tested your portfolio. We’ve done this fancy thing called Monte Carlo simulation versus how much you have in wealth and how much you’re expected to spend. And we’ve run thousands of trials. In 99% of them, you still got money left in your mid-90s.”

Everybody wants 99%. But we always say, “Hey, if you’re down in the 80%, 85% range, those are successful plan results. Those are results where you can actually retire and start making confident decisions on. But everybody wants to get that A, and they want those higher-plan results, which in actuality just mean that, hey, you’re probably underspending what you could. And if you’re fine with that, that’s great, but having the conversation around it becomes key. Not measuring progress against your plan and checking in on where you’re at, I think, is a big one. Small one because life happens, and you got to set aside time to be able to do it, but it’s a big one that can creep up on you, for sure.

Speaker 3:

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Walter Storholt:

It’s interesting that you guys are okay being comfortable with your clients in that more 85% range, I’m guessing, because you’re doing these progress meetings. If it was a set it and forget it, well, I better have a 99% success rate there.

Tyler Emrick:

You might want a little more.

Walter Storholt:

But if we’re checking in, it doesn’t mean that I have a 15% chance of total failure. It just means we may need to make some adjustments from the original plan as we go along if we’re skewing toward that 15%. Then you’re kind of constantly adjusting and changing, and so that’s why you can take on that additional risk, if you will. Is that kind of a good way to view it as a layman?

Tyler Emrick:

It would be. I would add on you think about that 15% that’s not successful. A lot of times, that would be, hey, the market has a one or two-year run that’s really poor, so your returns aren’t nearly as what they expected. Hey, you had some unexpected expenses that potentially crept up or were a little bit more than maybe what we originally had thought that impacted the plan. A lot of times, if you’re checking in, and you’re monitoring it, to your point, you’re going to catch those things and be able to adjust and kind of work in.

Another thing would be is a lot of times when individuals retire, they have some of these big decision points that they need to make, but sometimes those decision points get kicked down the road. Think Social Security or maybe starting a pension later or something like that. Early in retirement, those 15% could represent different strategies around taking Social Security earlier or doing this with your pension versus something else. And that’s certainly … As you’re thinking about how to quantify how good a shape you’re in those planned results, they can skew one way or the other and certainly have some emotional tie to them, for sure. But all good stuff.

Walter Storholt:

We’ve got two more mistakes to cover. What’s next?

Tyler Emrick:

Two more. Two more. These ones are pretty easy ones. Number four or mistake number four. Poor tax planning in retirement.

Walter Storholt:

Or no tax planning in retirement.

Tyler Emrick:

Or no-tax-planning retirement. The list that I found most frequently would be items like not managing your income tax bracket. You think about how your income is taxed. And when I say income, you still have income in retirement, whether it be Social Security, whether it be pensions, distributions from your IRA. All these things can show up as income, and of course that income is taxed at a progressive rate, meaning that the more that you make, potentially the more taxes that you could pay.

There’s efficiencies to be able to pick up there, right? Understanding what your tax bracket looks like long-term and what it might change to when required distribution start in your early to mid-70s or life events that happen can better allow you to make decisions in the now on, well, hey, would you pull a little more out of your retirement account than you potentially need because you feel you’re getting a deal from a tax-bracket standpoint?

The other one would be tax-efficient gifting. If you’re very charitably inclined, that would be gifting to church, charity, whatever the case may be, and how you’re doing that. And are there some efficiencies that you can pick up, whether it be bunching some of those gifting using a donor-advised fund or whatever the case may be? This can also show its head into family gifting as well. You start thinking about helping out maybe children. How do you do that? What type of assets do you gift to them? What does the structure look like? Can all kind of show its head here as you think about efficient gifting.

Healthcare is a big one that popped up, whether it be the old infamous IRMAA, where your Medicare premiums go up if you make too much. Or for those of you that are retiring before 65, trying to maximize the healthcare subsidies from the ACA. All those kind of go into areas where you can pick up free, good-planning money if you have a structure plan to work on it.

And the final one that popped up quite a bit was just timing of capital gains and tax loss harvesting. I think we just did a podcast on that with the market volatility here. They listed off a few of those. I think those are the big ones as you start thinking about poor tax planning. But in general, there are a multitude of studies out there that show that really effective tax planning can be worth its weight in gold and really add value over a long period of time, for sure.

Vanguard’s done a couple studies on it. Most of the big boys have as well. And time and time again, having an integrated financial plan that not only looks at the investments but your tax situation and your distribution planning and healthcare and all that good stuff really, we feel, is going to kind of be the way to go, so you can start picking up on some of these efficiencies. Because if the right hand’s not talking to the left hand, you can get yourself into kind of an odd situation to where that could be avoided, especially as you start thinking about some of these tax limits and so on and so forth. But poor tax planning or not thinking through tax planning was mistake number four.

Walter Storholt:

You had mentioned that is a simple one or smaller one on this list, but I just want to step in for a second to say real quick before we get to the last one here, Tyler, this is where you see the gap between financial planners and financial advisors and financial professionals, however we want to cast that net out there. This is where you really see that change and that difference between professionals because … And I know that that gulf can be there in some of the other things that we’ve talked about, even just in picking investments and crafting plans and order of operations as when you’re withdrawing money, all those kinds of things, but I think it’s easier to see in something like this where, if you’re working with a firm that’s not doing good tax planning, it’s not doing tax planning at all, that’s going to just have a huge gulf in results in your financial plan and your financial success in retirement.

This is a big one, I think. I just wanted to highlight that to say, even though it seems maybe small on the surface, if you’re not doing it, it’s big because this is a huge area of opportunity that’s hard to do on your own. At least, even though I’ve been in this financial world and learning about it constantly for the last decade-plus, taxes and all of these little nuances are where it starts to get out of that realm of being able to DIY it and all that kind of stuff. Don’t sell yourself short on the work you guys do on that stuff.

Tyler Emrick:

That’s fair. Absolutely. Well, and to piggyback on that a little bit, too, as I think about over the years, I’ve talked to many new families that kind of inquire about working with True Wealth Design. And a lot of the triggering events, as to what triggers a family or an individual to reach out to us, is one of those tax issues. They file their tax return, and they’re like, “What the heck?”

Walter Storholt:

“What happened this year?”

Tyler Emrick:

“What’s going on? Why do I have a $15,000 bill or a $10,000 bill? Why is my healthcare going up in price?” Things like that. And unfortunately, they’re kind of seeing it after the fact. Ideally, we would want to try to handle some of that stuff beforehand, of course. But it is. It’s one of the biggest triggering events for individuals to kind of say, “All right, I’m going to start working with someone because of XYZ happened to me from a tax standpoint.”

And the expertise is … It’s not as abundant. Having a good CPA, having someone that understands the tax code, it’s complex. Take a look at some of the changes in the Big, Beautiful Bill that’s out there and some of the changes that happen every handful of years here from a tax law standpoint. The legislation’s thick. There’s a lot of ins and outs. They certainly don’t make it easy. They’ve made some changes, I think, to simplify it, but they got a long way to go.

And understanding a lot of it, I think, definitely takes some expertise, and we definitely pride ourselves on doing that. I think we got 12 team members now on the tax side of our business that are filing returns and helping us with some of the complex tax situations that we run into. Definitely a big piece of the pie.

The last mistake here, Walt, is the one that is not a cherry pick. Maybe a fly under the radar one. It’s claiming Social Security without a plan. But the reason why I had to put it on here … It was literally on every single list that I had.

Walter Storholt:

Had to include it.

Tyler Emrick:

Claiming Social Security. I had to put it on here. And I think the big thing is just this is a huge decision. It is a big decision. It will have lasting ramifications on your wealth over time and over a long, happy, healthy retirement.

And putting in the time to understand what your options are. Especially if you’re married, or you had been married, and you maybe have access to a divorced spouse’s Social Security or a widow’s benefit or something like that, you find yourself in these situations … Claiming Social Security is just not as easy as, “Hey, I’m done. I’m not retired. I’m going to start my Social Security.” There really does need to be more thought put into the ramifications on the cost benefit analysis on starting now versus waiting, and what does that look like in your specific situation? Because the benefits of Social Security add up tremendously over time, and it’ll be with you throughout the entirety of retirement. It’s a big deal.

And one of the things that were mentioned, again, quite frequently was this whole idea that a lot of individuals think that, once you do retire, you do have to start Social Security. That’s not necessarily the case, right? Assuming that you do have assets that have been saved that you could live off of for a period of time … And there are a number of cases where we have recommended that individuals live off their own assets and delay their Social Security benefit to try to maximize what would be given to them over the course of their retirement because it fit inside of their plan.

Now, I’m not saying kicking it in early is always a bad decision. I’m just saying give the choice or the decision its proper due and make sure that you’ve looked through the numbers, and you understand what you’re giving up and getting depending on when you actually kick that in. Social Security is a big one, and obviously Social Security has been in the headlines quite a bit this year. It does have some decision points coming up. I don’t think there was any new legislation passed through the bill, from my understanding, or at least what’s in current legislation right now, but there’s going to have to be some changes. We’ll see what those potentially look like. But Social Security is a … It really is a big one, so it had to get thrown in here, for sure.

Walter Storholt:

We don’t have to spend all day on that one. I know we’ve done lots of episodes on Social Security, and we’ll have more that we do to look at different angles. But as kind of a closing thought, you brought up a little something interesting there about how the Big, Beautiful Bill comes out, and that has lots of implications in it that you, as an advisor, have to now go and figure out. And I’m imagining the last 10, 15 years, it’s not so much been the challenges of new things coming out. It’s new things coming out and then getting reversed and then getting re-implemented and then getting reversed or tweaked or changed or Secure Act 1.0, 2.0.

Tyler Emrick:

2.0. We’ve covered them all, right? They do. I always like to say politicians like to keep financial advisors employed because the complexity of some of this legislation and certainly some of the changes. It can be difficult to keep up on it, and-

Walter Storholt:

You have to be well read, right?

Tyler Emrick:

… you start thinking … You do. And you start thinking about some of the ramifications of maybe making a wrong decision just because you just didn’t know. Because a lot of times, it’s just you don’t know. It can be lasting. And to your point on the taxes, a lot of times it comes through and shows its head for taxes, and that’s when you get it.

Walter Storholt:

Great points. Well, thank you for this list. I’m glad that you read all these top five lists out there, Tyler, so we didn’t have to, and you culled it to the five most important ones for us. And a lot of good nuggets and lessons in here today.

Here’s the big thing. If you’re listening to today’s show or watching on YouTube for the first time, welcome, and it’s been great having you with us. If you heard one of these mistakes, and you’re kind of like, “I’m making one of those mistakes,” or, “I think I’m at a possible threat of making one of those mistakes based on how I’m currently planning,” and when we talked about tax planning, and you were like, “What’s that?”, that’s a great cue to maybe meet with a professional and talk a little bit further about how in depth your retirement plan has really gone and maybe where it can go and how it can improve into the future.

If you’re interested in working with Tyler and the great team at True Wealth Design, it’s very easy to see if you’d be a good fit to work with one another. You can meet with an experienced advisor on the team. All you have to do is go to truewealthdesign.com, click the Let’s Talk button, and schedule your 20-minute discovery call. We’ve got that linked in the description of today’s show, so it’s very easy for you to find. Again, it’s at truewealthdesign.com.

Tyler, thank you so much for the help on the episode today. We will look forward to talking to you again soon.

Tyler Emrick:

Absolutely. Look forward to it.

Speaker 5:

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