From Retirement Now Newsletter November 25th, 2021

Try eliminating these turkeys from your retirement plan and you’ll have lots to be thankful for.

  1. Relying solely on the wisdom of risk tolerance questionnaires. If you’re not familiar with them, these are questionnaires you take before investing money to help determine your risk tolerance. They have a place and can be very handy during your accumulation stage of life. And they can help you have a portfolio that doesn’t gyrate so much that it scares you into abandoning your investment strategy and precisely the wrong time. However, they have more limited effectiveness when it comes to retirement withdrawal stages of life. Also, they can be subjective and the person answering the questions can be influenced by current events and even the mood they are in or how well their day has been going. Better to also have a plan that shows what type of growth objectives you’ll have to meet to have enough income from your portfolio to help make sure it can sustain you in retirement.
  2. Changing your investment strategy every 6 months. If you are constantly chasing a new investment strategy and never sticking to anything you will probably not have near the amount of success as someone who invests for the long-term.
  3. Going broke slowly – Investing in only low interest bearing fixed products, like CD’s or fixed annuities and letting inflation eat away at your wealth. CD’s and even fixed annuities serve a great purpose for portions of your overall wealth as they are safe products that help preserve principal. But they are not intended to outpace inflation. And if inflation exceeds the after-tax return you get on your overall wealth you are essentially going broke over time.
  4. Religiously watching investment tv shows. This is kind of like changing your investment strategy and not sticking with something for the long-term. There are plenty of shows that will talk about where they think stocks in general (or even individual stocks) will be going. Remember, their job is to sell advertising space to advertisers of their show. They tend to always be overly bullish (or else their advertisers, mostly financial companies, would complain). And they often encourage individual stock picking.
  5. Listening to your co-worker’s hot stock tip. This may be a neighbor too… same thing. He may share how much he made on some stock. What he won’t tell you about are his turkey investments that lost money.
  6. Never adjusting your portfolio withdrawal amount, even when the market is down. Admittedly, this is a turkey move that few probably make in practice because it would rely on nerves of steel to keep withdrawing the same amount even when your portfolio’s balance has been temporarily pushed down by the market. But nevertheless since the 4% safe withdrawal rule was established from a study that showed what would happen if you kept withdrawing money, never adjusting it based on what the market was currently doing, to see how much you could spend before depleting a portfolio after 30 years, I thought it worth mentioning.
  7. Missing out on slam dunk Roth conversion opportunities. If you are retired you may have some good opportunities to do Roth conversions at low effective tax rates. I’ve even seen some 0% opportunities before. But even low effective tax rate conversion opportunities can still be good. It requires taking a look at your previous year tax return, or calculating how your earnings are looking in the current year before December 31st. Then determining if a Roth conversion would be favorable for you this year.
  8. Being overly zealous with your Roth conversions and triggering not only higher marginal tax rates but even some cliff taxes like IRMAA for all you Medicare beneficiaries. There’s a ditch on both sides of the road when it comes to Roth conversions. Too little means missing out on lower effective tax rates and too much means paying higher effective tax rates on the conversion. The goal is to lower taxable income during years of higher taxation (like working years) by contributing to pre-tax retirement plans and then take advantage of lower tax rates (like during retirement for many) to use the funds or convert them to Roth at favorable rates.
  9. Using high expense financial products. The most notorious of which would be the high fee variable annuity, which can have fees in excess of 4% every year. Often times the benefits of these products are not worth the cost. And sometime those benefits (like income guarantee riders) can be found elsewhere for a lower price.
  10. Trying to time the market. No one knows when the next stock market crash will be. Only if you had inside information could you benefit by timing the market. And insider information is illegal to use. Who would have thought in early 2020 the market would have gone down due to a virus? And who would have thought it would have rebounded as fast as it did in 2020? And who would have thought that 2021 would have had such strong market growth (so far at least)? And who knows what it will do in 2022?

Alright, let’s wrap this turkey up. Enjoy your Thanksgiving today.

If you need help with your retirement plan click here to book a 15 minute phone chat with me.