Category Archives: Costly Retirement Planning Mistakes

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Can Bitcoin Make Up for Retirement Savings Procrastination?

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If you read my blog post from last week, then you know I discussed why getting retirement investing advice from social media is a bad idea. Most of the people who offer such information have good intentions; it’s just that they are usually in a different place in their financial planning lives than you and me.

So, this week, I offer part two of last week’s post. I recently read a post from another retirement Facebook group that I follow. The person posting the question asked if she should consider looking at a more “aggressive” type of investing strategy since her 401k was not doing the job for her, whatever that means. She is in her 20’s and ready to give up. Ah, youth.

As you can imagine, several responding posts were offering a variety of suggestions. One that caught my eye was from another 20-something. He said he planned to retire in his 30’s because his strategy is to put all of his savings into Bitcoin, and he advised the young lady with the question to do the same. This week, we explore Bitcoin and things to consider if you are thinking of high-risk investing as part of your retirement savings plan.

Bitcoin is a cryptocurrency created in 2009. It trades in marketplaces called “bitcoin exchanges” where people can buy and sell bitcoins using different currencies. The attraction of Bitcoin and other cryptocurrencies is rooted in the fact that there are no middlemen, like banks. More merchants are accepting Bitcoin to pay for goods and services.

For example, you can book a hotel through Expedia using it and Overstock also accepts Bitcoin for purchases. There is a fixed number of Bitcoin, 21 million. Currently, there are 17 million in the market. The rest will be “mined,” which is a process of creating new bitcoin. For a deeper dive into the specifics of Bitcoin, you can read more here.

What I want to discuss is the risk of investing in bitcoin, which is a high-risk investment. Warren Buffet, the famous investor, stated that he would never own Bitcoin due to the extreme volatility that characterizes its trading. Cryptocurrency is not as liquid as stocks, so it is more difficult to get out if you see the value heading south.

Another reason Bitcoin is not for the faint of heart is that it trades 24 hours a day. Bitcoin fanatics are typically glued to their cell phones throughout the day, watching the value go up and down. Some investment pros say that it is a buy and hold investment and that one should approach it that way due to the large swings and the inability to time the market in any way.

The lesson with Bitcoin and any high-risk investment is to ask yourself how you would feel if you invested the amount you are thinking of investing and saw your value go to zero? Then, what if it swings back up in value in a couple of days only to go back to near zero in the next few days, and so on? It’s a classic risk tolerance test.

How much can you afford to lose within your retirement investing time frame, and will you be able to sleep at night knowing the volatility? When one is in their 20’s and 30’s, they have time on their side to make up for a high-risk loss. Not so much when you are in your 50’s and 60’s.

Instead of chasing risk to make up for years of not investing in your retirement plan, start where you are, work with a professional, and develop a plan that will allow you to retire on your terms.

For information on my financial coaching, go here.

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Why It’s a Bad Idea to Get Financial Advice Through Social Media

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I belong to a few Facebook Groups devoted to the topic of “retirement planning.” As a professional, I find the questions interesting, and some of the responses even more intriguing. You get the occasional planner or broker selling their wares. For the most part, there are people like you and me concerned about having enough money to live on throughout retirement. When I see a question from one of the members asking for advice, I typically encourage them to get a professional to help them. There is a danger in relying on social media for your financial planning.

A Northwestern Mutual study exploring the state of financial planning found that 63% of Americans say their financial planning needs improvement, and the number one obstacle is time. No wonder people flock to social media to look for a quick fix! 69% say the pace of society makes it harder for them to stick to long-term goals. Yet, the danger is still there. I always recommend that you work with a planner. Although the consequences are not as dire, it is like asking your cousin for medical advice because you don’t have time to see a doctor. There are no shortcuts in life!

Here are five things a Certified Financial Planner can do for you:

  • Bring a process to help you overcome your financial challenges – a CFP®  uses the procedure shown below in the graphic. It starts with identifying your goals and then proceeds with an analysis of your financial life. Then a plan is developed to accomplish your financial goals, including how to implement the plan.
  • Be objective – a CFP® is not tied to a specific investment product solution. He/she is a fiduciary, which means they have your best interest at the forefront of the relationship. You don’t have to feel like you are being “sold” something. Ethics is part of the CFP certification process.
  • Bring expertise – a CFP® has to pass a rigorous certification exam after completing an equally rigorous curriculum of various financial planning topics, including investments, taxes, estate planning, and financial planning, to name a few.
  • Make sense of life changes – life happens, as they say, divorce, marriage, death, and they carry financial implications. A CFP® can help you sort out the complexities often at an uncertain time, emotionally, in your life.
  • Business ownership issues – whether you are starting a business or exiting a business, it can be complicated to unwind a business partnership or put a business plan together at startup. A CFP® can be an objective and qualified resource. A CFP often works in concert with other professionals such as attorneys and business valuation experts to bring comprehensive and qualified experience to their clients.

So, while social media may seem like a good idea to cast a wide net and get a bunch of opinions on your financial situation, it can often cause more harm than good. I recommend that you take the time to interview a CFP® who is a good fit for you. Ask for recommendations and testimonials if necessary. You can find more information about the CFP designation at www.cfp.net .

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The Stockdale Paradox and Your Financial Decisions

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Viet Nam prisoner of war, James Stockdale, experienced some of the greatest inhumanity towards man that anyone can suffer. He lived to tell about it, and he left lessons that can help us maintain perspective during this pandemic and can provide guidance on managing our financial decisions.

On September 9, 1965, Wing Commander James B. Stockdale was shot down over the jungle canopy in Hanoi, Vietnam. As he was parachuting out of the wreckage, he had the presence of mind to prepare himself for what awaited him when he landed. He said to himself, “Five years down there, at least. I’m leaving the world of technology and entering the world of Epictetus.”

Epictetus was a Greek philosopher who espoused, “There is no such thing as being a “victim” of another. You can only be a victim of yourself. Stockdale returned home a hero after 2,713 days in captivity. He later told Jim Collins, author of Good to Great, “You must never confuse faith that you will prevail in the end (which you can never afford to lose) with the discipline to confront the most brutal facts of your current reality, whatever that might be.”

Jim Collins coined the phrase “the Stockdale Paradox,” as a way to describe the battle we face between optimism and pessimism. We face such a struggle amidst this pandemic. We keep hearing that it will be another 30 days, and then things will be back to “normal,” and then 30 days come and go, and another time frame is thrown out for us to consider. What if it is another three to six months?

According to Stockdale, the optimists did not survive the brutality of the POW camp. They hoped for a rescue by Christmas. Christmas came without relief, and then they said the rescue would come by Easter. Eventually, they died of a broken heart. Optimism is not a good foundation on which to base financial decisions.

Here are some ways to make financial decisions in the framework of the Stockdale Paradox:

  1. Realize the stock market is volatile yet time in the market is a proven strategy in the most unpredictable times versus running to the sidelines.
  2. Revisit your risk tolerance – has anything changed?
  3. Work with a financial advisor or financial coach to reallocate your investments if necessary.
  4. Anchor your investment decisions with your financial plan – if you don’t have a plan, get one completed!
  5. Balance your optimism or pessimism with the reality of the current economic state – learn what you can from trusted sources.
  6. Don’t be a “victim.” We can only control ourselves and how we respond. Respond with knowledge and a plan.

Stockdale’s approach was to find a way of thriving in whatever circumstances he found himself in so he could make it day to day for as long as necessary. While we all hope for a speedy resolution to this pandemic, let’s do our best to be the masters of our fate and control our financial destiny with a solid plan and faith in our economic system.

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5 Ways That You Can Retire on Your Terms Even If You Are Getting Started Late

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Being a CERTIFIED FINANCIAL PLANNER®, I am naturally more in tune with the truthfulness or, should I say, the intentions of retirement advertising. It’s all about hitting the pain points. Not much fun, right? At least buying a new car or a house is fun. Yet sometimes the important things in life are not “fun”. Retirement planning is one of those things.

When you need a new car, you check out the rates at the credit union. If you need a mortgage you also check rates. In other words, you shop for the best rate before you shop for your car or your new home. When was the last time you said, “Hey Honey, we haven’t saved enough for retirement. Let’s go down to the credit union and meet with a financial advisor.”? Probably never. I wish people were as in tune with their retirement planning as they are with getting a new car or a new house.

To compound matters, the big financial companies, that can afford to advertise on TV like to make you succumb to what I call the Lump Sum Scare. You know, they tell you that you need a lump sum of several million dollars or you won’t be able to retire – ever! I know better. If you haven’t saved “enough” and that is a relative term. It’s as personal as your fingerprints, you can still retire, be they different terms than maybe you are thinking about right now.

Let’s look at 5 ways you can retire on your terms, even if you are starting late.

  1. Work longer, retire later. Don’t forget, each year that you continue to work increases not only your Social Security benefit, if you have a pension it could increase that benefit as well. It will also allow your retirement investments to continue to grow (401(k), IRA accounts, and taxable investments)
  2. Work a second job or part-time after retirement. The first step is to figure out what your income shortfall will be and then you can start considering the type of part-time work you will need to supplement your other sources of income in retirement
  3. Reduce monthly expenses. Yes, this can be a painful process but in many cases, it will be necessary. This is why the budgeting step is so crucial. You don’t know what needs to be reduced if you don’t know what you are spending. Check out my “Budgeting That Makes $ense” course for a great way to develop your own successful budget. You can also get a free copy of my  Budget Tracker tool to get started. Most retirees don’t need to live on their pre-retirement standard of living. It will probably be somewhere between 70-80% of what you are spending now. Once you have your budget you can figure out what can be reduced or eliminated.
  4. Increase the contributions to retirement accounts. Use the power of compounding and time to work in you favor. Even a small increase of $50 to $100 a month can have a dramatic effect on your retirement savings depending on how long you have until retirement.
  5. Sell an asset. Again, probably a tough decision. Maybe not, if that vacation home is going unused now that the kids have grown and are not as interested in using it as they were once upon a time. Or maybe you want to downsize and get a smaller, less expensive home or move to a part of the country that is less expensive than where you live now.

Don’t be brow-beaten by TV and social media. Meet with a financial advisor or check out my coaching offer and decide what your retirement terms look like, even if you don’t have a big lump sum saved. You can still retire on your terms. Even if you are starting late. Get my free guide to retirement when you are starting late here.

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Learning from the Mistakes of Others

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How does that old saying go, “Those who cannot remember the past are condemned to repeat it”? I believe it applies to the challenges of living successfully in retirement. What does “successfully” mean? I live by Earl Nightingale’s definition of success which is, “the day to day realization of a worthy goal”.

I think it’s safe to say that retiring on our own terms is a worthy goal. So, what can we learn from history? I recently read a post from the blog Retired and Relaxed. There was an interesting discussion on what we can learn form others’ retirement “mistakes”. Here is a sample of the things “I would have done knowing what I know now”:

  • Stay healthy as I grow old
  • Have started saving and investing sooner
  • Make sure I don’t outlive my savings
  • Know the right time to retire
  • Not worry about medical insurance

These are just a few of the revelations in the blog post. The thing that struck me was that many of these things can be accomplished through education. Of course, a lot of “staying healthy” is out of our control yet there is much we can control by learning more about nutrition and exercise, for example. I agree that learning about savings and investing earlier in life can save a lot of financial heartache later in life.

However, it is never too late to learn. Understanding Medicare and Social Security are two learning opportunities that are timeless. By working with a financial advisor, you can develop a strategy to live within your means and not outlive your money. Again, it’s all about learning.

Checkout my blog post titled, It’s Time to Leave “Someday Isle” and Start Planning Your Retirement Journey for more on the “woulda, shoulda, coulda” mentality. Another of my favorite sayings is, “the best time to plant a tree was 20 years ago. The next best time is right now. We can’t undo past mistakes. We can embrace an attitude of learning and start today where we are and make the best of the time before us. Don’t go it alone. There are people like me ready and willing to help you avoid repeating the past and retire on your own terms.