Retirement Investing: Biggest Mistakes to Avoid That Could Cost You Thousands

 

Troy Sharpe: If a butterfly flaps its wings in Australia, could it really cause a tsunami over here? Well, what if you retire at the wrong time, take social security at the wrong time, and have two conservative of an investment portfolio? How does that butterfly affect your retirement future?

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Accumulation Phase vs. Retirement Phase

The big difference between the retirement phase versus when you’re younger and in the accumulation phase is all the decisions that you have to make at this point and the shorter timeframe that you’re now working with. When you were younger, pretty simple. How much do you save? Where do you invest that money or how do you invest that money? Once you get to retirement, all of the decisions that you end up making depend or determine how much money you have later in life.

Also, they determine how much tax you’ll pay, how much income you’ll have to live off of, how much money the kids get, charity, et cetera. When we look at this chart right here, and this is very important because this is why it makes it very difficult for you, the consumer, to understand if you’re on the right path or not. The decisions that we make in the beginning years here, look at this one.

The little box turned red, and it’s hard to see because this is a thousand different simulations. In reality, there are an infinite number of outcomes. This box right here in 2025, roughly, someone who retires now in 2023 and starts making decisions and they’ve set themselves down a certain path. Let’s say they started making bad decisions. What this simulation right here shows us is this path that they have started on is a red path, which means they run out of money at some certain point.

Why this is challenging for you is you don’t know the outcome of those decisions. You don’t know which path you’ve set yourself down oftentimes until it’s too late. Every single decision– Here’s another one, it’s a bad path that we’re going down. It’s red. We’re going to end up over here running out of money. We have a green one over here. This green one, we actually have less money than the other two on a comparative basis at roughly the same timeframe, but that path is now setting us on a much, much better trajectory.

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Am I On The Right Path In Retirement?

How do you know if the decisions you are making today are setting you down the red path or the green path? Like the matrix. The red pill or the green pill. Might be a blue pill. [chuckles] Let’s say you decide to take a trip somewhere and you hop in the airplane and you’re going and all of a sudden, you get a little bit of turbulence. Well, the pilot comes on the intercom and he says, “Sorry, ladies and gentlemen, we’ve hit some turbulence. I have my parachute. I’m bailing out. Good luck to the rest of you.”

That would never happen. It doesn’t make any sense. Pilots have flight plans, they have experience, they’ve been trained. They may adjust altitude based on what’s happening outside. This is one of the biggest mistakes that we see consistently being made by consumers. The first sign of turbulence, the market is down, something unexpected happens. “Well, I’m out, I have my parachute. See you later. Thanks very much, but I’m going to go in a different direction.”

Well, the problem is as a financial planner and an investment advisor, we are making decisions today that we believe are setting you on a path to have a better trajectory over time. In the near term, we don’t necessarily see the impact of those decisions. When the market is down, oftentimes you can feel like, “Hey, what am I paying you for? Why do we have this relationship? You should have gotten me out of the market.” That’s the exact wrong mindset to have and that’s the type of behavior that can lead to coming down one of these bad trajectories.

What makes it really difficult for you is how do you know if you’re making the right decisions. Whether you’re working with someone that you trust, and you believe they’re putting you on the right path, or you’re trying to do this yourself because again, if we look here in the short term, all of the outcomes are condensed for the most part. We can’t really see which path we’re on.

Oftentimes, we can make bad decisions, make mistakes, and be lulled into this sense of complacency one, two, three, four, five years into retirement because we have more than we started, or maybe we have a little bit less, but we’ve been able to have the income that we want. The truth is, we’re actually on a certain path. The outcome of those decisions that we make today will not readily be visible for years down the road.

If we are making bad decisions consistently, over time, we may dig ourselves into a hole that we won’t be able to get out of, especially if some type of economic catastrophe or something happens down the road. Maybe it’s a health situation that further exacerbates all the bad decisions that we’ve made previously. Then now, okay, we’re up the creek without a paddle.

Fees vs. Potential Returns

Now, I want to take this conversation into the area of fees versus value. Let’s say 20 years goes by retirement, and this is where we’re at. We started with $1.5 million now we’re at $3.5 million, would you care if you spent $20,000 a year or $50,000 a year, $100,000 a year in advice if you end up in this particular place? No, you probably want it because you have more money than you started with, you’re older, so you’re not worried about it anymore.

As far as running out of money and making bad decisions, it doesn’t truly matter what it costs to get here because you perceive value. That’s a good example of receiving value for the cost that you’ve incurred. Now, you’ve been bombarded over the years with fees are bad, you want to keep your expenses down. Expenses and fees can erode principle, can lessen your investment returns. That’s what you’ve heard over the years. How did these two reconcile and how do you know how to make a good decision?

First and foremost, you have to understand different types of fees in the investment world. I’m just going to touch on this but this is a very important concept because some firms and some structures out there are more fee laden than others. This is important to know because these are the types of fees that you typically want to avoid. I tried to create a little diagram here, and this is you. You’re retired, you’re happy, you have a bunch of money, you realize all these decisions that you have to make in retirement, and you don’t want to do it yourself, you’re not capable of doing it yourself, you don’t want to deal with taxes and income planning and all the stuff that a good retirement planner will do.

You go and you hire a firm and they say, “We’re going to do the planning for you, we’re going to manage the investments, we’re going to charge you 1%.” Excellent. Sounds like a good deal. That investment firm doesn’t have an in-house investment department or an in-house investment team. What they do, and this is very, very common in the industry, is they outsource the money to other money managers. They may charge 0.75% per year. Maybe they charge 1% per year, 0.6%, or somewhere in that range.

Now, a lot of times what these third-party money managers do is they then put you into different mutual funds that have their own expense ratios, trading fees, possibly 12b-1 fees, possibly loads, which are commissions that come right off the top of your investment dollars. This type of fee structure, as you can see, can become truly costly. You’re probably not receiving the value for what you are paying. This structure in the financial industry is very common, and it creates a series of layered fees.

Doing It Yourself vs. Working With Someone You Trust

Now, another thing that we’ll see is often with self-directors. We recently, and this happens all the time, but we recently had someone come in and they said, “Troy, I love the videos. Been even listening to the radio station and I’m thinking about working with you, but I have to be honest, I have to tell you, I don’t like paying fees.”

I said, “I get it. I understand. Let’s go through the process.” We go through the process and I start to identify certain mutual funds that he’s been investing in. I say, “Hey, I’m going to tell you what, we’re going to run a fee analysis on your mutual funds as part of this process.” We do the fee analysis and he comes back for the second visit and he was actually paying more when you look at the expense ratios, which were averaging about 0.5% to 0.75%, plus the hidden fees inside mutual funds.

He was actually paying more in fees to manage his own money without any of the planning that we talked about than we would charge to do all of that for him. When we start to talk about fees versus value, it’s very critical to understand what you’re receiving for what you’re paying, but also being able to look at the entire cost of any relationship that you have, whether it’s the mutual funds you personally invest in, or it’s a firm that you’ve hired, and then it’s set up in this particular structure.

One question to ask is, “Hey, do you outsource my money to a third-party money manager? If so, what do they charge? Is that fee on top of yours?” Usually, it will be. “Then what are the total costs for the mutual funds that we’re investing in, not just the expense ratios. I want to know all the fees associated with those funds.” Now, the reason why I wanted to have that discussion about fees versus values because there are fees that you pay that actually provide value.

Ones that can get you up here on a better path and a greater trajectory towards achieving security and retirement but then there are those hidden fees and outsource structures that it’s not very efficient. Those are the types of fees that can get you going down these paths that we have much less money than we otherwise would if we had a more efficient setup.

Quick summary. In the beginning of retirement, no matter if we’re making good decisions or bad decisions, the spread of outcomes is quite narrow. Oftentimes, we don’t have visibility into whether we’re on the right path or the wrong path, but do not mistake, you are on a path. Our job as retirement planners is to help you consistently make better decisions that give us a better opportunity to be on the right trajectory.

The challenge there is you often don’t see which path you’re on or the outcome in regards to the future benefit of those decisions you’re making today until 5, 6, 7, 8, really, 10, 12, 15 years down the road. For you, the consumer, it’s a challenge because you aren’t able to see what it is that we see based on either our experience or the modeling or the tools that we have and it’s much more of an art than a science. Retirement planning is not simply all math.

How We Design our Retirement Success Plan Around Your Best Interests

Whether you’re a client watching this video or maybe a prospective client who’s thinking about reaching out to us or maybe someone that we’ll never hear from and you’re going to go this and do it yourself. What I want to share with you now is how we design plans here at Oak Harvest Financial Group in order to do what we believe is to get us on the right path, so we call it the retirement success plan. It’s a plan that starts with the proper allocation, investment allocation, based on your goals of spending how much risk do we need to take? We want to make sure that piece is in place first. How are we going to allocate the investments?

Number two is an income plan. Step two. Then a tax plan. We have to have the income plan before the tax plan because without income, we don’t pay any taxes. That’s the thing about retirement is where we withdraw our income from determines how much tax we pay. Now those two go hand in hand together, but very critical steps of the retirement success plan process. Step four is healthcare. Step five is the estate plan.

By having a methodical process that we address each of those key areas in retirement, our belief is that we are going to start out on the correct path because we have visibility of the impact of these decisions that we’re making today, where it’s putting us along a potential trajectory, but more importantly, we have a plan. We implement that plan, then we execute the strategy, then we review, monitor, measure results and adjust if we need to.

That’s what the RSP is and that’s why when we talk about trying to get into a better path here where value is versus wasted fees that you may be paying. We received a comment on the YouTube channel that I believe ties into this really, really well. The comment was something along the lines of, why don’t money managers move money around more whenever the markets are going down?

First, the premise of that question is that as money managers, we have a crystal ball where we can see not only when to get out to the market, but also more importantly, when to get back in. The reason why when you have a retirement plan, we have structured something that puts us on a path that we believe is in your best interest. When the market goes down, instead of moving money all around and then altering the course that we’re on, that is an emotional reactionary response to what we believe would be a short-term situation.

We’ve anticipated these types of market declines. They’re built into the plan. It’s part of the deal. Instead of having an emotional reactionary response, we want to stay disciplined with our strategic and planned approach that’s focused on the long-term for your retirement security.

Do you need a Retirement Success Plan that goes beyond allocating funds to truly fit your needs? We can help you create a retirement life plan customized for your retirement vision and legacy. Call us at (877) 404-0177 or click here to fill out this form for a free consultation.

 

Disclaimer: This video discusses fixed-income investing and utilizes the 10-year U.S. treasury as a general representative fixed-income investment. Conclusions reached, opinions stated, and downside risks and potential returns presented should not be construed as applying to other types of bonds or fixed-income assets. Other types of fixed-income products carry different levels of risk and return potential and should be evaluated as an element of a diversified portfolio with your specific risk tolerance, investment objectives, and timeline in mind. Nothing in this video is investment advice, an investment recommendation, or an offer to buy or sell any security. Investing involves risk.