I have finally embarked on writing this 7-part blog series, based on an interview I gave recently detailing the common mistakes I see people make with retirement planning. Thanks for taking the time to read it! I hope you find it helpful. The 7 Deadly Sins are:
- No Holistic Plan
- No Spend Down Strategy or Exit Plan
- Too Focused On “Growth” Rather Than “Income”
- No Volatility Buffer / Non-Correlated Asset Classes
- Not Risk Smart
- Mistakes with Insurance
- No Strategy for Taxes
Today I will share my thoughts on: 1. No Holistic Plan
Many people start saving or investing money simply because they feel like they are “supposed to,” with no thought on how their current decisions will affect future outcomes.
For example, many people default to contributing money to their 401k, and they think they have a “plan”. While I applaud anyone, who is taking positive action steps, let me caution that the 401k is not a holistic plan.
In fact, it is a government plan, where you have a ton of restrictions, and you tie up your money for decades.
On top of that, people do not understand how distributions work – either in terms of the safe withdrawal rates, or taxes!
In addition, they often don’t have liquid savings because they are so focused on “investing,” yet when they need cash, where do they turn? They end up tapping into their 401k, because that’s all they have! That results in a 10% IRS penalty PLUS taxes, which significantly affects long term performance.
Remember the end goal: WHY do you even have a 401k? 
Most people cannot answer that question! But the fact of the matter is that the end goal is to generate retirement income.
When I begin to ask people questions about what they want, so I can get a feel for how we should structure their plan, they often become very disillusioned with their 401k.
“What % of your retirement income do you NOT want subject to stock market risk, real estate risk or business risk?” (It is surprising how many people say 100% – that they want 100% of their retirement income safe from market risk & volatility)
What % of your retirement income do you not want subject to income taxation? (It is surprising how many people say, “I don’t want any of my retirement income subject to income taxation if possible… can you do that?”)
Then I have to be the bearer of bad news: “Do you understand that by putting all of your retirement savings into a 401k, that you are putting yourself 100% at the mercy of the equities market?
If stocks and bonds are doing well, so are you.
But if the market crashes, so does your retirement. Are you okay with that?”
“And by putting all of your retirement savings into your 401k, ALL of it is subject to income taxation upon withdrawal.”
You see, many people forget that 401k contributions do not eliminate taxes, it just defers taxes until later… and it also defers the tax calculation.
Can I ask you something – do you think it is possible that tax rates will be higher in the future?
If the answer is yes, let’s consider a few other things: with the country over $25 trillion in debt; with Medicare projected to become insolvent in 2026; with Social Security projected to become insolvent in 2034; and with the low rates of the current tax law set to expire in 2025 – do you think it’s possible that taxes could go much higher in the future?
And with many of our politicians getting a larger and larger appetite for spending that is sponsored by social programs – such as free health care, free college, universal basic income, etc. – if more of these politicians get into office and pass these through as laws – won’t that just compound the problem?
We have always been told by the financial industry that we will pay lower taxes in retirement, but we are finding the opposite to be true in many, many cases.
On top of all that is mentioned above, don’t we lose many of the deductions & credits that we rely upon in our working years?
Like the deductions and credits that we get for mortgage interest, having dependents (minor children), student loan interest, charitable donations (as many retirees now donate time instead of money) and several others?
I recently had a gentleman in his late 30s tell me that he thinks taxes will be higher in the future… And he wants 0% of retirement income subject to market volatility… And he wants “as little as possible” of his retirement income subject to income tax.
Yet he is maxing out his pre-tax 401k to the tune of $19,000 per year!
That is a great savings habit! But when asked about the tax & volatility issue, he said he had not really given that any thought “because I’m just trying to squirrel away as much money as I can.”
I am proud of this gentleman for living within his means and having the discipline to save & invest so much money for the betterment of his family’s financial future.
I do not fault anyone for trying to improve their financial lives with the information & knowledge that they have available to them.
However, many people have faulty, biased, or outdated information.
As I ask people questions, in order to help them come to their own conclusions and clarity, they often come to the realization that what they’re currently doing is the exact opposite of what they believe – and many times they’re taking those actions because of the way that Wall Street and the financial media has conditioned us with what to do with our money.
Whether it’s using 401k’s, Roth IRAs, Cash Value Life Insurance, Brokerage Accounts, Annuities, or any of the other financial products that are out there, it’s important to work with a trusted financial professional to structure your retirement plan based on your goals, values, and beliefs, to achieve the desired outcome that YOU want.
With a little effort, teamwork, and most importantly, ME on your side, we can create the kind of secure, happy financial life that you have always wanted!
Contact me for a complimentary appointment, and tune in for our next entry in the series, Deadly Sin #2 – No Spend Down Strategy or Exit Plan!
P.S. If you haven’t checked it out yet, please stop by my mini online seminar How Retirees and Pre-Retirees Can Potentially Avoid Going Broke While Keeping Their Nest-Egg Secure! Tons of great information and bonus is it is 100% COMPLIMENTARY!
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