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2022 EP0205 - Planning Matters Radio - Common Mistakes

Planning Matters Radio / Peter Richon
The Cross Radio
February 6, 2022 9:00 am

2022 EP0205 - Planning Matters Radio - Common Mistakes

Planning Matters Radio / Peter Richon

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February 6, 2022 9:00 am

How do we know if we are taking too much? To have these and many more questions answered just contact Peter Richon (919) 300-5886


Plan planning matters when you welcome once again to planning matters radio show where we shed some light on the financial issues of the day and hopefully have a little fun along the way my name Scott Wallace some joint today. As always, by a Ramsey trusted smart investor probe and author of understanding your investment options and use a five fiduciary financial investment and retirement planner serving his clients throughout the great state of North Carolina. Peter's job. Welcome to the show paper shaded Scott, good to see you again. Great for everybody to be tuned in, we appreciate you sharing some of your time with us. We hope we get to share some important thin and helpful information with you. The point of the program. We believe that everybody deserves a confident financial future. How we all get there may be a little different.

Along the way so we talk about some of the strategies that could be important to you and offer the opportunity that if you'd like to find a little bit more out about any of them. We can have a one-on-one conversation. We all have a laundry list of things that we would like to do in our lives we look back on it's a lot of what it could or should. Money is no exception, of course, in hindsight, as always, is 2020 and sometimes we can see things and ever in a me in the mirror and the reflection even clearer and we do looking forward right right Peter that applies to financial matters as well. Yeah, absolutely. I think it was Yogi Berra that one said things are hard to predict, especially when they deal with the future. By the past. We know what happened.

We can see it and you know we can relive some of those mistakes and they're just as painful. Every time we think about them and I think that everybody's got probably a book with several chapters in it of things they wish they had done differently in their lives. You know some some decisions that we make can be fantastic kind of life, impactful decisions, asking our spouse out on the first date that took some courage and it ended up know in a in a very good situation into the future. Taking a chance on that job that landed you a career that has been rewarding. But then there are some things that we look back on. I was a man that was that was a terrible decision. Wish I had known it at the time and we just gotta learn from those experiences and try not to repeat them. So on today's program. I think Scott will cover a few of the common financial mistakes. The things that I have found people look back on and tends to regret and hopefully listeners and viewers to the program can take a little bit from that. Hopefully not repeat some of these mistakes and if you're inspired to talk with a financial advisor directly. You can talk with Peter Rochon himself about your financial situation personally and you can contact him by calling 919-300-5886 or go into his website Peter how much is enough for saving.

Have I saved enough. Have you saved enough. Has anyone saved enough money for such things in such a basic pillar of finance where here's the thing. I think that it's human nature to always want more shirt and it's it's innate in our DNA that wherever we are.

What level we get to. We just seem to not be completely satisfied and fulfilled and always feel like we deserve or we need more of whatever it is, and I was telling a story a little earlier of my dad situation. He had a house in the mountains and he was working for himself and then he got a job in DC and moved into kind of one of these no economy condo kind of things. The size of your average one-bedroom apartment took him a few years to actually sell the house up in the mountains and it sat there, fully furnished for those several years.

He finally just got rid of it and got it. Of all the stuff inside and through that process, he made the comment to me is like, you know, I've realized through this that sometimes your stuff owns you. And so it kind of changed my perspective on on a few of the things is I am going through the phase in my life were looking that we want to move into a bigger house, do we want to re-furnish how much stuff do you really need and can I personally control that desire to always want more because do I own that stuff or does that stuff end up owning me at the end of the day. Now money a little different right because that's what provides our ability to live whatever lifestyle we decide is comfortable for us, and the question of have I saved enough absolutely a very common one and unfortunately a common mistake is not saving enough.

We just tend to not get started not get that ball rolling. Soon enough, once we do get the ball rolling. People are saving you know 5% to 10% whatever amount into their 401(k) know that's great but if you save 10% of your gross income over a 30 year career, and you make the same thing every year about 30 year career.

By the end of 30 years saving 10% you have saved a grand total of three years worth of income right and over that time.

We hope for decent and reasonable investment rates of return. So we double lit and double lit and double it again and now we have 16 years worth of income. Guess what retirement can be 30 to 35 years pretty easily and usually your income goes up over 30 years. So what you were saving at the beginning doesn't represent 10% of what you were making at the end so we need to strive to save a little bit more because at some point in time we want to stop trading our time for money that ideal that were making when we show up to work that my time.

I'd rather have the money right and eventually we get tired of making that trade or we can no longer make that trade and we don't have the ability to earn new income will from that point forward. We've got to live off of what we've been able to save and accumulate.

That's got to support our ability to live and our ability not to be forced into trading our time for money so can you ever save enough yeah you you can and we can arrive at a conclusion. I think that I'm going to never tell anyone that saving more is bad for your financial confidence. If you're going to air.

I guess erring on the side of too much is a better choice than the other alternative yes but there is another side of that. Scott, which is saving so much that you don't enjoy life along the way and you and I have talked about this money is important, you know, there's no denying that money is not the most important thing we use money to support the things that are important to us in our lives to be able to do the things that we find true value when money was the most important thing we would just keep making that trade we would go to work as much as possible and stack up the biggest pile of money we possibly could. That's not anyone's goal. I don't think I mean Scrooge McDuck did a great job of it but it looks like. He also enjoyed himself along the way a little bit being afraid to spend and then never using that money that you built up and passing away with an unfulfilled bucket list like when you started the program you talked about the things that we regret or the mistakes that we made. I have found in my life. Personally, the things that I most often regret the things that I didn't do. I shy. Looking back I should have done this. I should have taken that trip when I got the opportunity. I didn't. I should have gone after that job when when it was available to me.

I didn't you know that the things that I didn't do are the ones that sometimes I think about with the most regret and if you pass away with a pile of money where you could have done so much more with it. That's almost as as sad as not having saved enough so it really is a balancing act as a tight rope that we've all got to walk during the course of our lives of enjoying life as it comes in.

As we move through it but also making sure that we are saving enough to continue enjoying it even after we stop working and earning that paycheck that right.

That's what that's what the planning process is about right. 919-300-5886 if you want to get your own planning process started with Peter, Peter, how can we feel more confident in our ability to spend. I mean, it seems like there's that the fear, anxiety, provokes the possible over saving so I says I do suppose confidence would be would help us in spending the right way. Of course you can overspend very easily. How do we get that confidence. How do we walk that line so I think that the reason people don't spend money and enjoy themselves because they lack the confidence where does the lack of confidence come from is the root of your question there very good question you. I think it comes from uncertainty comes from unknown.

That's what fear stems from. It's not what we know that were afraid of.

It's what we don't know that's lurking out there that's hiding behind the next corner. What if that happens you know if we sit down and we construct a plan. A lot of times that confidence level was raised. I'm not going to say that we eliminate fear or eliminate the unknown that that would that would be impossible but we can address a lot of the things that people have left unaddressed, you know during our planning process. I am not a lawyer or attorney.

I don't design the legal documents but a lot of times I asked one of the first questions do you have your legal documents or do you have will you have a power of healthcare. Do you have a power of attorney.

You have a medical directive, the amount of times that that is answered. No we don't, or year we did that 20 years ago, before we had kids before you know we had a divorce and remarriage is astounding. But like that's the kind of thing that creates some of those fears.

If you just face that if you sit down, take a couple hours and knock out the discussion of what you want to have happen if you're no longer here. Or if you're here and can't make decisions for yourself. You can move past that piece of the puzzle and have that much more confidence that it's been addressed. Do you have life insurance in place, you know a lot of people don't. And that leads to financial uncertainty and lack of confidence. If I pass away what will happen to my family. How will my mortgage get paid how my spouse maintain their lifestyle.

How my kids be raised and up and out through college at MI can leave behind. That's an those are actually things that Dave Ramsey talks about before even getting into the baby steps in a Dave talks about having step $1000 in the bank.

Step two. Running through the your your debt snowball paying it off smallest to largest. But what doesn't get talked about quite as often as that are the steps that he actually prescribes before the baby steps which is any adult over the age of 18. Especially if you're married, have a mortgage, have children as those legal documents in place and has some appropriate amount of life insurance. He talks about 8 to 10 times.

Those are critical pieces that will instill confidence and we haven't even gotten into the financial and investment and retirement planning.

Part of that yet. When you know am I saving enough. Well we we set a percentage we got a benchmark that if if you've been saving all along the way saving 15% is a great target goal more than that fantastic.

You want to do that. But there might be some other things that you want to do with that money less than that. You're probably not making the progress that you should in order to allow you confidence in maintaining your lifestyle into and throughout retirement, then how my invested. What should I be actually investing know it as we progress through these steps and questions and a little bit of confidence is added in each one.

Then we feel more confident in our total financial picture and actually gives us the permission and the freedom to spend with without kind of that doubt and worry lingering overhead you find what would your speaking to a new client, they could they come to you. The reason they come to their excited or motivated to get started investing you find that you've the kinda put the horse before the cart if there so they want to run before they can walk sometimes so my kind Anish in this profession has been with those who were in the transition. And I will save the day of, but like within 5 to 10 years of making the transition into retirement. That's that's kind of who I have served since the beginning of my career and back in 2007 and 2008, I wasn't really doing a whole lot of money in the market, so more often than not I was giving those kind of people who were on the precipice of retirement options for safe money strategies where they wouldn't have their money in the market and at risk and during the great recession. I was a lot of those people's heroes so we didn't lose any money. When everything was going down, and then the next several years. During the rebound yelp because it's safe. You don't risk your money.

The reward is not as high potentially and so you know they were not reflecting the gains in the market but over a longer period of time you look at downs and ups included.

They still ended up ahead, and that's really been where where I started and where my missions remained, but being a Dave Ramsey smart investor Pro when I formed my own company I got introduced to many younger people who were more of Dave's kind of audience who were just starting out or who have had some credit or debt issues, and they were looking to try to make some financial progress and a lot of times the folks on the precipice of retirement may need some gentle reminders and really need the crafting and construction of a plan to replace income, whereas those that are younger are trying to like you said, put the cart before the horse. We need to reorder some things in there trying to investor try to capture the 401(k) match there trying to be aggressive in that, but then they still have card debts, credit card bills, student loans, kinda hanging out behind them right. Might my analogy there is, we could build a building to the sky. Great great structure all the features that you want, but if there are tunnels being dug underneath it and termites in the foundation we night might not be building a a solid financial structure and so I really do believe that there is an order of operations back in math class in in algebra and pre-algebra. There was the conversation about order of operations pediments. Please excuse my dear aunt Sally have to do the math equation in that order to get the right solution I see these funny things on Facebook all the time where it's relatively simple math question and before getting that crazy wrong because they're not doing the proper order of operations in your financial progress. There is a correct order of operations. Now there are couple variables along the way that we need to solve for for your particular set of circumstances, but the order of operations generally remains pretty consistent in order to come up with a good result and that financial confidence that we are going to get the answer right. By the time we retire. Good stuff. 919-300-5886 is the number talk to Peter personally. If you want to take a look at your own financial situation. Peter mistakes happen, we beat ourselves up over them and there's the old adage, you know, those who don't know the past are doomed to repeat it, but wow did we found a lot of yeah that line between learning from our mistakes and beating ourselves up for those mistakes. How do how do you walk that line with your clients of yourself.

Well, there's there's another saying that smart people learn from their own mistakes geniuses learn from the mistakes of others and and especially in retirement. We don't have the time or luxury to just be smart people and learn from our own mistakes the that the saying will that didn't go so well. Better luck next time is not one that applies to retirement. We have one chance at that ideal retirement and so we really really need to take the time to try to learn from some of the mistakes of others and not repeat them.

So yes, we can look back and we can beat ourselves up for. I should've bought that stock way back when I should've sold that stock. We talked about the fact that hindsight is 2020 if we could copy and you know Michael J Fox's time machine and go back to the future. Back to the past, we could all be fantastic investors knowing then what we know now, but we only have the information that we had at the time that we made that decision right so it's obvious looking back that all will coven.

Of course there was going to be this monumental drop in the stock market and of course things were going to rebound right away but in the moment. That's not how all of us felt we didn't know just how bad the downturn was gonna be. We didn't know how quick the snapback was going to be and we can look back at many many other examples and say kind of the same things, but we can't stop forward momentum because we've made one mistake that's compounding on the mistake. That's preventing further progress. Good money after bad.

They absolutely end and we don't want to do that if I didn't start saving in my 20s is the correct solution to continue not saving in my 30s in my 40s in my 50s, absolutely not. When I realized that hey I didn't start saving in my 20s when I should have.

Well, the next best time is right now. You know, that's when we need to get that started to correct course and get us back on track and so yeah we can look back and say I would've showed a coda well if we didn't we start now and we get that plan put together and we start making better decisions moving forward 1 foot in front of the other because you're not going to get to your destination if you don't start that momentum yet all those people you know who claimed that they knew how to time the market perfectly. They should all be billionaires right now. If they if they were that smart.

So it's interesting you know when when people say of course we should've known that well they did know that they didn't bet on it. They should have in that case, so 919, 300-5886 is the number to talk to Peter about your financial situation you talk about people, maybe not saving enough. Maybe a way that they could make up the difference store or make up time is if the taking a little more risk it with their with their plan how you feel about that where you know how much risk to take on at any given time will it it depends on you right it is each individual has a different level of risk tolerance and what I find is that unfortunately a lot of people's portfolio does not match their risk tolerance, and I think that's where the misstep is made. Some people feel like they are more aggressive investors until the market turns south and goes down and then they suddenly realize they're not as aggressive as they thought everybody feels like they are an aggressive investor as the market is going up the true gauge of your risk though is not how much you're shooting for in returns or else we would all be aggressive, speculative investors, the true gauge of your risk tolerance is how much you're willing to lose during a downturn and that we try to arrive at a conclusion of by quantifying the few ways right if I talk to somebody about what what's the possibility of losing 10% of your portfolio, 20, 25%. Sometimes that does not have the same impact as saying we got $1 million in your portfolio. How do you feel about losing 100,000.

How do you feel about losing 200,000 250,000, and for some reason that's got a little different feel to it than just talking about percentages. Number one, but number two when we do figure out kind of where the threshold for pain is actually at somewhere between 10 and 20% hundred and 200,000 knife I could bear losing that if the market was down 40 or 50%. Okay, so now we sort of honed in on your threshold for pain. Now let's open up the portfolio. Look at the positions run an analysis on them and in previous downturns. How much have these positions actually lost because mutual funds and stocks and things in the market tend to behave similarly under similar conditions and mutual funds.

In particular, by law, in the prospectus have to stay invested a certain way. So if in 2007. This fund lost 50% and in 2020. During coven.

This fund lost 30%, but you're telling me Mr. or Mrs. client that you're only comfortable losing 10%, then why are we in a fund which has shown a proven track record of being exposed to more risk than what were comfortable with and and that's really where we begin the conversation and I'm saying it a little bit you know more. More to the point year on the radio just so that it sinks in. But you know we uncover that that what I call peak to trough the ratio of the funds that they've where have they peeked out before, where have they subsequently fall into what's the ratio didn't lose one third of its value one half of its value would we be comfortable going through that kind of thing again and that's where we arrive at at that risk tolerance.

Unfortunately, like a lot of people make their investment decisions based on past performance.

However, they don't make their retirement decision based on past performance. What I mean by that is past performance has proven for the vast, vast majority at say 99% of people that income was the most important thing we had our income. That's what supported our ability to pay our bills. That's what actually supported our ability to invest and build the investment and retirement portfolio, but somehow we are going to enter into retirement without a plan for how to replace that income right so were making the investment decisions based on past performance but were not actually making in formulating the fundamental plan based on proven success levers in the past and past performances with investments I think is one of the biggest fallacies in the financial world as I can.

I can go through a few different scenarios where I can kind of do the math, and show you a positive rate of past performance and you end up with less money than you started with so just. There are several things there but the question of how much risk too much. Not enough. That's really based on the individual's risk tolerance. We try to find that as we begin to craft and create and construct the plan that's interesting. So your not having a plan for retirement in many ways is the worst plan that you can have. You should at least know that you're doing something so what are just some basic steps someone can get when they're getting started planning for their retirement. Assuming they maybe haven't gone through the steps enough to this point. Well, I thought, I think you having a discussion with somebody who has constructed plans and yet not not having a plan is it is a plan right if you if you fail to plan, plan to fail.

I feel like were doing the famous assaying's yeah data on today's program but you know they're famous and there often said for a reason, because often their true and so if you don't have a plan. It is a plan is not a very good plan. So let's put a plan together and and make sure that we tested a little bit. There's another famous saying about plans Mike Tyson that everybody has a plan until I punch him in the face writing we need to punch a plan in the face a few times like that. It sounds silly but like let's poke holes in it. Let's act like Murphy's Law is basically the law of the land and the rules that were going to live by let stress test back plan and really see what happens if there's another 2000 through bubble if there is another 2007 through 2009 great recession. What if we see a couple more decades like that into the future. Are we still to be able to maintain our comfort, our quality of life. That's with the planning process is about.

Do we have the ability to spend in years one through five of retirement and then not run out of money in years.

25 through 30. Can we can we make sure that years 25 through 30 are are comfortable and that we've got a plan for for healthcare and well-being and what about after retirement, you know, transitioning all these dollars that we have worked so hard for on to our loved ones and family make sure they are secure. How does that happen. How does that work in and oh by the way, taxes, and in an inflation in healthcare all those expenses are going to be in between now and then how do we deal with those great advice. Here the great way to learn from the mistakes of others is to get a trusted advisor of some sort. Peter Sean would be a great person for you to talk to the please please get those retirement plans in order.

You can talk to him directly. Talk to the man himself by calling 919-300-5886 are going to his website almost at a time. Your Peter anything you want to take it home with on this financial planning mistakes show that we've going through today. I think we covered a lot and even as we were kind of discussing one issue that was maybe a common mistake others came up like not having those legal documents in place not having life insurance, one that we didn't talk about so much was Social Security.

I see a lot of people just kind of rushing out and going in claim in collecting Social Security before really understanding and weighing all of the options that they have the folks down at the Social Security Administration office do not provide advice on Social Security. They do not know the rest of your situation, so they do not take on that liability. Their job is not to tell you if that's the best day to show up there job is to file the paperwork on the day that you show up freshly it's it's on its own use on your shoulders to do a little homework ahead of time and Social Security may not be is not likely everything that most people need in retirement.

But man is it a great support system for a healthy retirement and we certainly want to get everything out of it that we can.

We paid into it. All of those years. So take a little time like this is one of the services that we offer to sit down with you for 30 minutes and and at the very least like review the options on the Social Security so you can break that into your larger time in income plan. Social Security does not stand alone on an island. It is not in a vacuum.

Your decision on Social Security directly impacts how long the rest of your money will last, how much you will depend on the rest of your money and therefore is the baseline for retirement security throughout your lifetime and even if you have talk with someone about Social Security in the past, the goalposts of kind of moved it would support have you update your plan at this point, right yeah yeah unfortunately with our our our government and that the constant moving of the goalposts that happen.

Yeah, things change so it's not like it's a set it and forget it process. So I did a plan five years ago. A lot has changed in just a couple years, certainly in five or 10 review the plan on a regular basis. That's another common mistake is people don't review and update their plans got what Peter really thank you for the great advice if you want to talk to Peter you can call them at 919-300-5886 or his website, which on Peter, thank you so much for being with us and we hope that you join us for another episode of planning matters since been planning matters radio the content of this radio show is provided for informational is not a solicitation or recommendation of any investment strategy you are encouraging investment tax or legal advice from an independent professional advisor.

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