In March, I wrote about some of the mistakes people make in retirement. That column focused on how people ignore taxes on things like IRA distributions—or, on the other side of the coin, how they become so obsessive about not paying taxes that they end up making mistakes and paying more.
I did not intend to write more than one article about the subject of retirement mistakes, but several readers reminded me of a few more common ones. So I thought I’d share those too. They run the gamut from poor communication with spouses to a dismissive attitude about things like long-term-care insurance.
Keeping ‘Disinterested’ Spouses Out Of The Loop
In most marriages, there is a division of labor. Rarely do you see both spouses taking the garbage to the curb, for instance. That labor division helps get things done. But it also blinds them to pitfalls.
Namely, it’s that one spouse is usually responsible for the finances—the investments, insurance and taxes. This works great for many couples, until it doesn’t—usually, when the spouse who deals with money suddenly can’t either because he or she has died or suffered a cognitive decline. The surviving spouse is usually not well-equipped to make good decisions.
I’ve had more than one spouse tell me, “My spouse isn’t interested in these things.” That is likely partially true. They may have no interest in knowing the differences between an open-end mutual fund and an ETF or why a qualified charitable distribution is a good way to fulfill a tithe. But I assure you they are interested in being diversified and giving to their church.
They are not, in fact, “disinterested.” Even the most financially clueless person is an expert on what they want and what they view as important. Those insights are important to setting goals and giving the financial planner appropriate direction.
We planners need to encourage the less engaged spouses among our clientele to join the conversation at the right level for them. We can make it easier by saving the details they find tedious for other interactions.
I’ve become more adamant about this in recent years after interviewing too many widows and widowers who are unnecessarily stressed out because their deceased spouse left them unprepared. Suddenly they are forced to ask questions, but they don’t know what to ask, let alone what to do with the answers. The anxiety they face is a travesty and largely avoidable.
Estate Planning: It’s More Than Taxes And Inheritance
Most of what I read in industry publications and professional journals about estate planning is about keeping the tax man at bay. That’s all well and good, but estate planning is about far more than taxes or about who gets what when somebody dies. First and foremost, estate planning is about making decisions when you’re still alive about what happens to your legacy when you’re gone. Who will make the decisions about it when you can’t anymore?
It is awful to see families fighting over healthcare or end-of-life decisions only because there is no healthcare power surrogate, no valid power of attorney or no living will document to put into motion. Without these things, clients put an unnecessary burden on their spouses, who must struggle with financial institutions or navigate guardianship proceedings.
Dismissing Long-Term-Care Insurance
Very few people get to stay healthy and active, then pass gently in their sleep at a point it will cause no issues for anyone around them. Most people understand this, but few prepare for it or plan for how to pay for it.
It is often said about long-term-care insurance that those who can afford it don’t need it and those who need it can’t afford it. There is some truth to that—but only some. There’s a large swath of the population between those two extremes for whom a long-term-care policy is a good idea.
Yet many clients won’t even consider it for a number of reasons: No one wants to be sold unneeded coverage, a badly designed policy or a policy from a weak insurer. Others assume that long-term-care insurance is too expensive or they fear future rate increases. Others think agents are going to rip them off. Or they can’t get by the idea of “paying something in without getting anything back.”
And some just can’t handle thinking about that kind of care.
I am a financial planner, not an insurance agent. I do not sell long-term-care insurance. But if I’m going to provide a responsible planning service, I need clients to address the issue of care and how to pay for it thoughtfully. If a policy makes sense for them, I want them to get a good one from a good carrier served by a good agent.
If you don’t make a good faith effort to get clients to engage in the planning needed to handle and pay for long-term care, you are missing an opportunity to add tremendous value, whether or not your client ends up buying a policy.
Basing A Financial Decision On The News
This is not the kind of mistake made exclusively by retirees, of course. But there’s an added layer of tragedy attached when retirees make it. Just at the point they have achieved their dream of financial independence and should be enjoying the rest of their lives, the news makes them feel more out of control and stressed out than ever.
The Covid-19 crisis showed us the importance of making tactical decisions in the context of a larger strategy. At our firm, we saw the crisis as a time not to give in to stress but to think about tax-loss harvesting, rebalancing, Roth conversions and a few other things. So we ended up moving a lot of money around for clients last spring.
We did not do this out of fear, nor did we make these changes based on a prediction of where the markets would be in the short term. We made these tactical decisions based on the overwhelming evidence that they were likely to add value when a bear market came and went. Moreover, we only made the moves when they fit an individual client’s strategy.
People following the markets often come across events that seem to be “unprecedented.” And people inundated with disturbing information don’t realize that every time before has been “different” too. The cast, settings and plotlines of the previous dramas all vary, yet the ending is always the same. Businesses adjust and market values, in the aggregate, recover in time.
As reliable as market recoveries are for truly well diversified investors, one other reliable outcome of bear markets is that they are always stressful in real time, and the media only make the stress worse.
The media should report on a crisis. It is real news. Still, most of what is broadcast in trying times is highly unlikely to be helpful to people making important financial decisions. The news ranges from negative to highly alarmist, biased or worse depending on how professional the outlets are.
But the news can lead people astray even in calmer times. Whether it’s the markets, the economy, tax code changes, political matters or myriad other issues, there is always something to worry about. It may be legitimate news, but the way people ingest it is typically problematic. Confirmation and recency bias abound.
If I could ask about only one activity of a prospective client, it might be, “Do you watch the news regularly?”
A yes would get a simple follow-up: “Are you willing to quit?”
It bothers me to be so blunt about it, but I see too many retirees radically shrink their time frame and make speculative decisions in times of crisis, reacting to a media-induced fear of a pending crisis. What they should do is re-engage in the planning process and recommit to their plans.
Don’t get me wrong. I believe citizens have a duty to stay informed and participate thoughtfully in the world. I just don’t see much of our media aiding that effort.
Professional planners talk about focusing on things that can be controlled. If I could teach clients only one thing about financial planning, it might be how to control their intake of news. They should watch enough to stay informed, but not so much that they work themselves up and toss aside a sound strategy trying to predict next month’s news, which is a much more stressful task.
If we don’t help our clients develop better skills in this area, they will have trouble maintaining their resilience. And the ability to help clients with this may be one of the most important skills planners possess.
Dan Moisand, CFP, has been featured as one of America’s top independent financial planners by numerous magazines. He practices in Melbourne, Fla. You can reach him at [email protected].