As originally appeared in The Jerusalem Post on November 23, 2017.
In order to have a successful and secure financial retirement, it’s imperative to avoid these miscues.
Not too many of us are good at admitting when we are wrong. After all, each one of us is so smart – so how could it be possible that we actually made a mistake? Unfortunately, when it comes to retirement, invoking George Bernard Shaw’s quote seems incorrect.
Much to my chagrin, I see investors make the same mistakes time after time. In order to have a successful and secure financial retirement, it’s imperative to avoid these miscues.
So here are a few common missteps that if corrected can have an immensely positive impact on one’s retirement.
What a ‘balagan’
Earlier this week I sat with a retiree who had the biggest mess of a financial picture that I had ever seen. She had no idea how many or where she had accounts. She handed me boxes of mail. We went through letter after letter, and I helped her open brokerage statements from 2011.
She insisted that some of those accounts were moved to a different firm, but she had no records of those transfers.
She must have had in excess of seven different brokerage/ bank accounts.
All too often retirees have multiple investment and savings accounts with different firms. This isn’t terrible in and of itself, except that it makes it difficult to supervise and evaluate. Not only does having so many accounts make it complicated to get a full financial picture, it can create havoc when the retiree gets older and may not be able to stay in control of the accounts – or worse, forgets that the accounts even exist.
When a client has multiple accounts, his or her financial adviser should be sitting on top of the entire situation. The professional will not just focus on one account but should assess everything and see how the entire financial situation fits the client’s goals and needs. In short, the financial adviser should be like a corporate chief financial officer (CFO).
Too much cash isn’t king
Another mistake that I see regularly is keeping too much money in cash. It goes without saying that an important part of any financial plan is to keep between three and six months of expenses on the side, totally liquid, in the case of an emergency. This is generally referred to as an emergency fund.
The problem is that I often see investors keep a lot more than even two years of expected expenses. If the yield on cash were decent, then it wouldn’t be the end of the world to keep a significant amount in cash. But today, with interest rates still near historically low levels, it’s a big mistake.
Keep your emergency fund in the money market, but get the additional money invested and starting to work for you.
Neglecting to budget
Another mistake retirees make is that they neglect to budget.
They figure that since they have pensions and Bituach Leumi (National Insurance Institute), whatever money they may need they will take from their investments. This is reasonable enough, except that too often they start losing control over how much money they really need and start raiding their investment accounts, drawing down much more money that they are able to take out.
The long-term result of this is the enhanced chance that their retirement funds won’t last nearly as long as they had thought, and they will run out of money.
No one added to accounts
As retiree’s age, they usually don’t add someone to the account to execute changes on their behalf. I advise retirees to give a child or a trusted confidant trading authority. This way, if the client can’t fully supervise the account, it doesn’t become frozen.
More than once I have seen a case where an older client had an individual account and took ill, becoming unable to execute any instructions in the account. This is when access to money is extremely crucial, and since the individual is the only one with any authority over the account, the money becomes as good as frozen.
I understand the fear of adding an account holder who could potentially withdraw money, but there are many ways to go about this that provide for checks and balances.
Perhaps you will want to require two signatures from a list of three possible signers. Perhaps you draw up a power of attorney. Consult with your family and advisers to devise a plan and instruments that work for you to give signing authority to someone.
Admit your mistakes and then correct them so that you can have a financially sound retirement.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.gpsinvestor.com or email firstname.lastname@example.org.