Had to Retire Again

I want to share a story with you of someone who was ready to retire, who had all their ducks in a row and things looked really good for them. They were confident about their future and retirement, but eight months later, their certainty fell off a cliff due to a few things they could’ve easily avoided.

I want to share this with you so that you can avoid things like this from happening in your plan.
Now when we do retirement reviews for people, we often see that most plans have five to seven main risks out of the 20 common ones that could impact the success rate of their retirement plan. Those could be tax risks, inflation risk, or even sequence-of-return risks. For this person, their plan involved several investment risks.

When we first looked at their plan, we saw that they could easily fund their living expenses (including wants, needs, and “dream” expenses) for the rest of their lives.

So, What Happened to This Person?

One of the big risks that we noticed was their over-allocation to a certain sector in the market. This person had been primarily investing in a few stocks in one sector.

Our recommendation was to pare those back a bit because they didn’t need to take that risk to have a successful retirement and meet all their expenses.

However, they were very certain about this sector and the companies they liked and didn’t want to implement any of our recommendations.

We chose not to work with this person because of the risks associated with the plan if we kept going the way they wanted to. A few months later, that overexposure to one sector negatively impacted their plan and changed the certainty of their retirement.

What Can You Take Away From This Story?

Now, what can you and I learn from this as we’re planning our own retirement? We already talked about two mistakes people make, and we have three more. The first two were:

  1. Over-allocating to one sector.
  2. Taking too many risks if you don’t need to.

Here are the other three:

  1. Diversification isn’t the only thing that matters. Don’t just assume that a traditional diversified portfolio (three or four fund solution) is all that you need. That might be fine as your saving and accumulating money, but in retirement there are other important considerations.
  2. Make sure you don’t have too much leverage in your retirement portfolio. There’s really just no need for this. 
  3. The last one is not having a target return goal for your retirement investment plan. If all you needed was a 5% average return to meet your goals, why shoot for 20% per year?

In my opinion, it makes sense to find what you need and design your retirement plan around that. We could go for some singles and doubles, or have more certainty and win the game.

Retire the Right Way

Retirement planning is a complex and long-term process that requires patience, effort, and dedication. That’s why it’s important to be aware of the common mistakes people can make in their financial planning and learn to avoid them.If you need help crafting your ideal retirement plan, schedule a free consultation with our certified financial advisors at Streamline Financial.

Sources: https://www.cfainstitute.org/-/media/documents/support/future-finance/avoiding-common-investor-mistakes.pdf

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Disclosures: Securities offered through LaSalle St. Securities LLC (LSS), member FINRA/SIPC. Advisory services offered through LaSalle St. Investment Advisors LLC (LSIA), a Registered Investment Advisor. Streamline Financial Services is not affiliated with LSS or LSIA. LSS is affiliated with LSIA.