2022 EP0205 - Planning Matters Radio - Common Mistakes

Welcome once again to Planning Matters Radio, the show where we shed some light on the financial issues of the day and hopefully have a little fun along the way. My name is Scott Wallace. I'm joined today, as always, by a Ramsey trusted smart investor pro and author of Understanding Your Investment Options.

And he's a fiduciary financial investment and retirement planner serving his clients throughout the great state of North Carolina. Peter Rishon, welcome to the show. Hey, appreciate it, 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 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 then offer the opportunity that if you'd like to find a little bit more out about any of them, that we can have a one on one conversation. Can we see things in the mirror, in the reflection, even clearer than we do looking forward? Right, Peter? And that applies to financial matters as well? Yeah, absolutely. I think it was Yogi Berra that once said things are hard to predict, especially when they deal with the future. But the past, we know what happened. We can see it and we can relive some of those mistakes and they're just as painful every time we think about them. But 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 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, you know, in a very good situation into the future. Taking the chance on that job that landed you a career that has been rewarding. And there are some things that we look back on and we say, man, that was that was a terrible decision.

Wish I had known it at the time. And we've just got to 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 tend 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 Rishon himself about your financial situation personally, and you can contact him by calling nine one nine three zero zero five eight eight six or go into his website. W w w dot Rishon planning dot com.

W w w dot rich on planning dot com. Peter, how much is enough for saving? Have I saved enough? Have you saved enough? Has anyone saved enough money?

It's just such a basic pillar of finance. Well, here's the thing. I think that it's human nature to always want more.

Sure. And 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's situation. He had a house in the mountains and he was working for himself. And then he got a job in D.C. and moved into kind of one of these economy condo kind of things.

It's 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 rid of all the stuff inside.

And through that process, he made the comment to me. He was like, you know, I realized through this that sometimes your stuff owns you. And so it kind of changed my perspective on on a few of the things as I am going through the phase in my life where we're looking at. Do we want to move into a bigger house?

Do we want to refurnish? 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, five percent, 10 percent, whatever amount into their 401k, you know, that's great. But if you save 10 percent of your gross income over a 30 year career and you make the same thing every year of that 30 year career by the end of 30 years saving 10 percent, 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 it and double it and double it again. And now we have 16 years worth of income.

But 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 percent 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's the deal that we're 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. Well, 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 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 err, I guess erring on the side of too much is a better choice than the other alternative. Yes, but there is another side to 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.

There's no denying that. But 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 in. If 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 looked like he also enjoyed himself along the way a little bit. But being afraid to spend and then never using that money that you've 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've made. I have found in my life personally, the things that I most often regret are the things that I didn't do. 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 it was available to me.

I didn't. 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 sad as not having saved enough. So it really is a balancing act. It's a tightrope that we've all got to walk during the course of our lives of enjoying life as it comes and 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'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 the fear anxiety kind of provokes the possible over saving. So I guess suppose confidence would help us in spending in 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 is because they lack the confidence. Well, where does the lack of confidence come from is the root of your question there.

Very good question. You know, I think it comes from uncertainty. It comes from unknown. That's what fear stems from. It's not what we know that we're 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 is raised. I'm not going to say that we eliminate fear or eliminate the unknown. That would be impossible.

But we can address a lot of the things that people have left unaddressed, you know, during that planning process. I am not a lawyer or attorney. I don't design the legal documents.

But a lot of times I ask one of the first questions. Do you have your legal documents in order? Do you have a will? Do you have a power of health care? Do you have a power of attorney?

Do you have a medical directive? The amount of times that that is answered, no, we don't. Or, yeah, we did that 20 years ago before we had kids. Before, you know, we had a divorce and a remarriage.

It's 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 will my spouse maintain their lifestyle? How will my kids be raised and up and out and through college?

Am I going to leave behind debts? And those are actually things that Dave Ramsey talks about before even getting into the baby steps. You know, Dave talks about having step one, a thousand dollars in the bank, step two, running through 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, has those legal documents in place and has some appropriate amount of life insurance.

He talks about eight to ten 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. You know, am I saving enough? Well, we set a percentage and we've got a benchmark that if you've been saving all along the way, you know, saving 15 percent is a great target goal. More than that.

Fantastic if 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 am I invested?

What should I be actually invested in? You know, 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 over our head. Do you find when maybe when you're speaking to a new client, they come to you, the reason they come to you, they're excited or motivated to get started investing. Do you find that you have to kind of put the horse before the cart if they're so they want to run before they can walk?

Sometimes. So my kind of niche in this profession has been with those who were in the transition period. And I won't say the day of, but like within five 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. Oh, we didn't lose any money when everything was going down. And then the next several years during the rebound, you know, 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 niche has 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 had had some credit or debt issues. And they were looking to try to make some financial progress. And a lot of times the 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. And they're trying to invest. They're trying to capture the 401k match.

They're trying to be aggressive in that. But then they still have card debts, credit card bills, student loans kind of hanging out behind them. Right. My 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 might might not be building a solid financial structure. And so I really do believe that there is an order of operations back in math class in algebra and pre-algebra. There was the conversation about order of operations. Pedemas, please excuse my dear Aunt Sally, you have to do the math equation in that order to get the right solution. And I see these funny things on Facebook all the time where it's a relatively simple math question and people are getting it 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 a couple of 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.

Nine one nine three zero zero five eight eight six is the number to 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 how do we see a lot of that?

Yeah. How do we walk 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 and with yourself? Well, there's there's another saying that smart people learn from their own mistakes. Geniuses learn from the mistakes of others. And especially in retirement, we don't have the time or luxury to just be smart people and learn from our own mistakes.

The saying, well, 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 have bought that stock way back when I should have sold that stock. And we talked about the fact that hindsight's 20, 20.

If we could hop in, you know, Michael J. Fox's time machine and go back to the future or back to the past, we could all be fantastic investors knowing then what we know now. But we only had the information that we had at the time that we made that decision.

Right. So it's obvious looking back that, oh, well, covid, 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. You know, we didn't know just how bad the downturn was going to 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 say. Absolutely. 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 and my 40s and my 50s?

Absolutely not. When I realize 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, ah, woulda, shoulda, coulda. Well, if we didn't, we start now and we get that plan put together and we start making better decisions moving forward.

One foot in front of the other because you're not going to get to your destination if you don't start that momentum. Yeah. All those people, you know, who claim that they knew how to time the market perfectly, they should all be billionaires right now if they were that smart. So it's interesting, you know, when people say, of course, we should have known that. Well, they didn't know that. They didn't bet on it and 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 can make up the difference or make up time is taking a little more risk with their plan.

How do you feel about that? Where do you know how much risk to take on at any given time? It depends on you, right? 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're 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 it a few ways, right? If I talk to somebody about what's the possibility of losing 10% of your portfolio, 20, 25%, sometimes that does not have the same impact as saying, well, you've got a million dollars 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, it's somewhere between 10 and 20%, 100 and 200,000. I could bear losing that if the market was down 40 or 50%. Okay.

So now we've 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 COVID, 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 we're comfortable with? And that's really where we begin the conversation.

And I'm saying it a little bit more to the point here on the radio, just so that it sinks in. But we uncover that what I call peak to trough ratio of the funds that they've, where have they peaked out before? Where have they subsequently fallen to?

What's the ratio? Did it 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 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, I'd 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 we're making the investment decisions based on past performance, but we're not actually making and formulating the fundamental plan based on proven success levers in the past. And past performance with investments, I think, is one of the biggest fallacies in the financial world. Because 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. And we try to find that as we begin to craft and create and construct the plan.

That's interesting. So you're 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 think, you know, having a discussion with somebody who has constructed plans and yeah, not not having a plan. It is a plan. Right.

If you fail to plan, plan to fail. I feel like we're doing the famous. Yeah. Yeah. On today's program.

But, you know, they're famous and they're often said for a reason, because often they're true. And so if you don't have a plan, it is a plan. And it's not a very good plan. So let's put a plan together and and make sure that we've tested it a little bit.

Yeah. There's another famous saying about plans. Mike Tyson said, everybody has a plan until I punch him in the face.

Right. 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 we're going to live by. Let's stress test that plan and really see what happens if there's another 2000 through 2002 dot com 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 going to be able to maintain our comfort, our quality of life? That's what 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 comfortable and that we've got a plan for for health care and well-being? And what about after retirement? You know, transitioning all these dollars that we have worked so hard for onto our loved ones and family, make sure they're secure. You know, how does that happen? How does that work? And and oh, by the way, taxes and inflation and health care, 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 Rashan would be a great person for you to talk to to please, please get those retirement plans in order. You can talk to him directly.

Talk to the man himself by calling 919-300-5886 or going to his Web site, www.richonplanning.com. Almost out of time here, Peter, anything you want to take it home with on this financial planning mistakes show that we've been going through today? Well, I think we've 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 and claiming and 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.

Their job is to file the paperwork on the day that you show up. It's on you. It's 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 at the very least like review the options on the Social Security so you can incorporate that into your larger retirement 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 talked with someone about Social Security in the past, the goalposts have kind of moved. It's important to update your plan at this point, right?

Yeah. Unfortunately, with our government and 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. Oh, I did a plan five years ago. A lot has changed in just a couple of 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. Well, Peter, we really thank you for the great advice today. If you want to talk to Peter, you can call him at 919-300-5886 or his website, richonplanning.com. Peter, thank you so much for being with us. And we hope that you join us for another episode of Planning Matters Radio.

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