What’s The Biggest Financial Mistake You Can Make?

Robert Farmer Retirement Planning, Uncategorized

Every year I conduct dozens of workshops focused on retirement planning. At each workshop I ask the same question: “What’s the biggest financial mistake you can make?”


I get a wide range of answers, some of which are strange and often humorous. One attendee stated that lending her children money was the biggest financial mistake she could make. Of course, when we extend money to our children, it’s often a gift and not a loan.


One gentleman said “The damned horses.” He never did clarify if he meant the riding kind or the racing kind. Perhaps he had lost some money at the track, or perhaps he had a few quarter horses that didn’t pan out as investments.


Losing money gambling on horses or giving away money you need are definitely decisions that can qualify as financial mistakes. But are they the biggest financial mistakes you can make?


The answer I am looking for and rarely get is “Running out of money in retirement.” It’s a mistake you are unlikely to overcome because going back to work at 80 presents challenges that few retirees can meet. Who would hire you at that age? How much money could you possibly make?


Planning for retirement is crucial. It ensures you can retire on your terms, with enough money to live the way you want. It’s critical to do it the right way. At the age of 30 an investor has the time to make mistakes and recover from them. At the age of 60 a person does not have the time to spend years building back up to the point they started from. That’s the situation many folks close to retirement found themselves in after the market upset in 2008.


Running out of money in retirement is a major problem, but it’s not the mistake. It’s a symptom of failing to plan for retirement, and I feel that is the biggest financial mistake you can make. Failing to develop a retirement plan often results in retirees scraping by on a minimal fixed income.


Don’t make that mistake. Develop a retirement plan. Once you have made a retirement plan, you need to follow through: you have to implement the plan, monitor the plan and work the plan.


I don’t like clichés, but failing to plan is planning to fail.


When I tell people this, I often receive confused looks and even stranger replies. One man said, “Oh, you are just trying to get your hands on my money!” While it’s hard not get offended by such a response, I understand the reaction. There are some salespeople within the financial planning industry deserving of the skepticism.


All I can do is smile and say, “On the contrary, I am trying to keep the hands of the taxman, the politician and the gambler out of your pocket.” Remember, your retirement plan is designed around your needs, incorporating your assets, mitigating the risks you may face and the goal is to provide the retirement you want.


To illustrate my point, I ask people to imagine their dream home. Take a moment and close your eyes and get a clear picture of it. Do you see it? Good. Now, think about trying to build that dream home without any sort of plan. No blueprints, no schematics, no floorplans, no contractor.


You ask the lumberyard to send to send you a load of lumber…but the lumberyard doesn’t know what sizes and types of wood you need. You tell the concrete worker to pour a foundation “somewhere over there” and to make it “long enough and wide enough for my dream home.” You ask the window manufacturer to send you a bunch of windows. When he asks how many and what type, you tell him “just send what is needed to build my dream home.”


In your mind, you might see a dream home that looks like this:




Without a blueprint, this is what you will likely get:





Do you see the problem? No one but you can know what your dream home looks like. No one knows how many square feet it should be, how many rooms, what type of flooring, how many light fixtures…the amount of detail that goes into building any home is immense and we aren’t talking about just any home. This is your dream home. It’s your plan and your vision.


The same sort of care and attention to detail that should take place in building a home is similar to constructing a financial plan. A financial plan tells you how much you need, when you need it, how long you will need it and what steps to take to ensure those conditions are met.


If you don’t have a plan, then how will you know if you can succeed?


I recently had a couple come into my office. They wanted to retire. “When do you want to retire?” I asked. The husband replied that they were unable to agree on a date.


“What’s the reason for the disagreement?” I asked.


“Well,” he said, “I think we have enough to retire now and my wife says we don’t.”


I looked him in the eyes and asked, “How much money do you need to retire?”


He said he had no idea, but he felt they would be finically secure in retirement. I asked the wife why she felt they didn’t have enough money to retire. Her response was “I don’t feel like we have enough to retire comfortably.”


Do you see the problem? Neither one of them knew how much they needed to fund the lifestyle they wanted in retirement. They were approaching the beginning of their retirement plan with feelings, not figures.


We sat down and started to do the preliminary work that lays the foundation for any comprehensive retirement plan. We examined bills, investments, savings, taxes, children, assets, ages, Social Security, healthcare costs. These are critical elements that factor into expenses and income after retirement.


It turns out the wife was right. With a few adjustments, they could have retired the next week…but not with the lifestyle they desired. We worked together and created a plan that paid off some bills and diverted some money to retirement savings with the goal of retiring in three and a half years. The plan worked. They retired and have been happy in retirement ever since.


It does little good to retire if your retirement is temporary. If you make the mistake of not having a sound retirement plan, you run the very real risk of leaving your job only to return to work a few years later, most likely earning far less money. A retirement plan helps you avoid the terrible mistake of running out of money before you run out of time.


Don’t dream of retirement without building a plan to match your dreams. Give us a call or send us a message online. Our Discovery Sessions are free. We can help you build a retirement plan that matches your vision for retirement.