10 Things Most Advisors Won’t Tell YouSubmitted by Vawter Financial on July 24th, 2018
The moment a person finds out that their continuing to work is now “optional” can be a life-changing and memorable moment. Below are some tips that can make this happen sooner than later.
1) Goal Accountability –The firm Dalbar reports mutual fund flows which reflects that too many investors repeatedly sell low and buy high (very bad). They make decisions based more on their emotions than what actions best align with their goals. The tougher action to take is to “stay with your plan” (don’t sell low) and ignore the “buy now” hype at market tops.
2) Retirement Deductions – Rarely do people take full advantage of all the IRA, 401k, 457, 403b and other retirement account deductions available. Make the IRS/government subsidize your retirement by investing on a pre-tax and/or tax-deferred basis.
3) Tax LOCATION – A person’s account can grow much more quickly if earnings are sheltered from taxes by knowing WHERE to own what assets. Vanguard mutual funds estimates this can increase an investor’s return by as much as 3% per year!
4) Investing “through” retirement – Many retirement savers forget that once they retire, their money might need to last another 30+ years. This causes them to invest much too conservatively (aka they get a lower rate of return) given the long time horizon in front to them.
5) Do and Don’t use Debt – If your home mortgage has a rate of around 4%, it is likely you are better off putting more money in your IRA or 401k instead of paying down a mortgage or other lower-cost debt. You also have to use AFTER-TAX money to pay down debt versus having ~30% more PRE-TAX money in your retirement account instead. Higher cost debt has to be paid off.
6) Insurance is not an “investment” - Too often people are sold insurance products that make the agent a lot of money at the expense of their clients. Most everything that has some insurance element makes the insurance company more money than the purchaser.
7) Outside Assets – When investing for retirement, consider your entire investment portfolio when making changes and revisions. Everything needs to work together, not in isolation, to achieve your retirement goal.
8) Retirement Taxes – Taxes are the single largest expense before and after a person retires. Tax planning should be considered as part of EVERY decision when planning for retirement. To lower your overall lifetime taxes, planning for age 70 ½ required account distributions should start BEFORE you retire. Using Roth conversions is one strategy.
9) Social Security Maximization –There are 146 possible combinations of claiming strategies that a 62-year-old couple has. In many instances, there can be a $500,000 difference between them!
10) Hobby Job – Find something you like doing the first few years of your (early) retirement to allow your accounts to continue growing. Making an extra $25k/yr in a hobby job is the same as having an extra $500k in your portfolio earning 5%. ($500k x 5% = $25k)
11) A Bonus One! When working with a financial advisor, only use one that adheres to the “Fiduciary” standard of client care. Most people don’t realize that the majority of financial advisors are NOT required to put their clients’ interest first. At VF, we put our clients’ interest first in all matters!
Cheers to your (sooner, rather than later) early retirement!