Two Common Retirement Planning Mistakes
About the author: Jeff Martin is a financial advisor at Cornerstone based in Reno, NV. He enjoys being able to help clients create customized strategies for their portfolios based on their unique financial goals.
Yesterday, I was sitting in a meeting with a nice couple who had come into our office for a second opinion. He is an engineer at a local firm in Reno and she is a nurse. This couple has done a lot of great planning. They had saved and invested their way to a great portfolio and they were looking forward to a nice retirement. Their income would come from their social security benefits, pension, and withdrawals from their investment portfolio. But they were facing a big problem, and they didn’t even know it!
During their working years, they were socking money away; they were depositing money into their 401k plans at work. But they didn’t realize they had made two very significant mistakes. Number one, they plowed their money into several investments that had significant hidden fees. What this meant was, they were paying a total of 2% in fees, every year. Some of these fees they knew about, but a lot them they didn’t. By adding up the disclosed fees as well as those hidden fees, it really added up to a significant number throughout the years.
Their second problem was, they didn’t have a tax plan. Yes, they were investing their money, being wise, but they did not have a tax plan. They had a CPA who did a great job helping them to file their tax return and take advantage of write-offs and deductions, but they didn’t have a plan as to how they are going to withdraw money from their tax-deferred retirement plans in a tax-efficient manner during their retirement years. What they found was that right now is an excellent time to start putting a tax strategy together to make sure their withdrawals in retirement will be as tax-efficient as possible.
The fact is, studies show that the vast majority of people have two gigantic holes in their investment portfolio. First, there’s usually fees, and taxes. And this always leads to inefficiencies. It’s kind of like riding a bike into a headwind. So, to improve your odds of financial success, I recommend you take back control of two important things: hidden and unnecessary fees and unnecessary taxes. Bottom line, paying more in taxes doesn’t make you more patriotic. It’s just means you’re paying more in taxes.