Scary Financial Mistakes to Avoid

Whitney Reagan: What spooks you about financial planning? In the spirit of it being Halloween today, we are going to talk about some things that people think are scary, but they don’t have to be.

Thanks for joining us today. Happy Halloween. It’s our special Halloween episode on Your life Simplified. I am one of your co-hosts, Whitney Reagan, wealth advisor here at Mariner, and I am joined by my favorite cottontail, I guess, Dan Sharkey. He is a senior wealth advisor, certified financial planner and a fellow co-host on the podcast. How are you today, Dan?

Dan Sharkey: I’m great. I’m really excited to talk about these very serious topics that we have here today.

Whitney: I’m not going to be able to take you seriously today, but I’m going to try. And in the spirit of the Halloween and being spooky, I feel like you and I are not really on brand.

Dan: We’re just trying to have a little fun. And for those who are listening, go check out the YouTube channel for a little surprise. But we’re excited to dive into this.

So before we get started, what are some of your Halloween traditions as you go through with your family? I know you have three little kids, so it’s always a big day in the family world.

Whitney: Halloween is a big one in the Reagan household, and I have three kids, two of them are boys. You have three boys, so I’m sure your house is equally as ridiculous and destructive as mine.

There’s a lot of practical jokes going on in our household, and I don’t know if I associate that with Halloween or if that’s just kind of an everyday occurrence. So that’s the ridiculousness in the Reagan household. We also do the pumpkin patch and pick out our pumpkins, carve our pumpkins and have a little contest on who makes the best jack-o’-lantern. What about you, Dan?

Dan: Well, we actually live on a cul-de-sac, so just quick shout out to Joe and Megan across the street. They host the entire neighborhood at their house for Halloween. So we probably have 30 families and about a hundred kids that all take over the street and the driveway and then do the trick-or-treating thing.

And then once we’re done, they break out the Solo Stove and the parents have a little trick-or-treating of their own. So it’s a really wonderful day. So Joe and Megan, we appreciate you out there for taking one for the team.

Whitney: So, you’re treating in your area and I’m tricking in my house.

Dan: Exactly.

Whitney: All right. So let’s get down to business. We are talking about things that might spook people about financial planning, but they don’t have to be scary. Where would you like to start, Dan?

Dan: Well, so let me just start off with the first one here and one that we hear quite often is, “Hey, I’ve made really poor financial decisions in the past, and I don’t want to relive it. And really what’s the point of starting now?” What would we say to someone facing that kind of spooky instance in their life?

Whitney: Well, I don’t think the past is going to predict the future, right? That’s kind of what we say in our line of business, and our past results don’t guarantee your future results.

I think that anytime … I think you just need to start somewhere, and if you’ve made poor financial decisions in the past, you can learn from your mistakes. And I think the best place to start is really with looking at your budget and also working with a financial planner.

Dan: I couldn’t agree more, and I would give you kind of a dramatic example, but that is of smoking. If you talk to any doctor, the day you quit smoking, your life expectancy increases by about 50% just from that one action.

And like we do with all of our clients here, what you did in the past does not have any relevance on what we’re going to do today. What we care about is you taking that first step forward. And by beginning to start that process and build that snowball, you will find yourself in a much better place going forward.

And there’s tons of analogies that I could give you. Just go to the gym for the first day, eat healthier just day one. You just have to get started, and don’t concern yourself about what has happened in the past. You can’t go back and change it. You can only control your behavior going forward.

So that first step is critical, and don’t let any past decisions really impact your ability to get started now because I can promise you that you can really make incremental and significant progress going forward regardless of what you’ve done previously.

Whitney: Yeah. If you start your plan and stick to your plan and just keep revisiting the plan, I think is how we usually like to talk about it. So I should have mentioned in the beginning that we have a little list of these kind of spooky things or things that might spook you.

And the next on our list is really … this is what we’ve heard from either clients or prospects, or at least I’ve heard this before where someone says, “Financial planners probably think I’m a joke because of the amount of money I have or the amount I don’t have.” And how would you answer that or respond to that, Dan?

Dan: It’s a great question. And look, there has to be some level of accumulation to really make a difference. If you’re living paycheck to paycheck, there are things that you can do to improve, but your options are more limited.

What I would say to people is that contextually, people think that they have different amounts compared to what their neighbors are. So I’ve talked to clients with $10 million who don’t think they have a lot of money versus clients who have $500,000. So the amount isn’t really the point.

The whole idea is to make sure that you have a plan that’s getting put in place and that you’re addressing the things in your financial life that you don’t really fully understand or don’t know how to plan for in the future.

The amount of wealth that you have or will ultimately grow into today is not overly important. These techniques … and we’ve talked about this on a previous episode in regards to the family meeting, but the amount of money you have does not preclude you from instilling some of these positive habits today that’ll ultimately grow your wealth over time.

So don’t look at your bank account or your balance sheet and say, “Hey, I’m too small to get help.” Our job is to figure out what is appropriate for you regardless of what that number is.

Whitney: Yes, I agree with all of that, and I also like to bring up estate planning because really in the eyes of the law, an 18-year-old is an adult. And so, they need to start thinking about different decisions and what kind of … who can handle medical decisions and who can handle, if anything were to happen to them, financial decisions, those types of things. So really, you need to be thinking about these wealth planning ideas when you’re a lot younger than you would think.

Dan: Absolutely. And for any parents who are out there who are in the process of working with your Mariner advisor to get your estate plan completed, use that as an opportunity to bring your kids into the fold.

I talked to several generation 2 clients’ children all the time, and we encourage them for that exact reason. Whether or not you have a lot of wealth has no impact on who gets to make health decisions on your behalf.

Everyone should have an estate plan. It’s not just a wealth transfer tool. There are tons of other benefits that it provides, and every adult should always have one of those in place.

Whitney: Great. Okay, I’m going to go to the next one. What if someone says, “I don’t know the first thing about investing. I don’t have any idea what investing is or how to do it or how to begin.” How would you respond to that?

Dan: Good. That’s what we’re here for. It’s better to admit that you don’t know what you’re doing than to either not do it at all or to have a false sense of humility and just think that you can have all the answers.

Investing is complicated, but it doesn’t necessarily have to be. It’s very, very easy to get lost in jargon, to get lost in all the other talking heads, and we’ll come back to this later in the episode, but to get lost in all the information that you see on TV, that you read in the newspaper, that you hear around the water cooler.

The whole idea is that if you’re working with someone who’s qualified or if you’re even doing it on your own, that you keep things simple, that you understand cost, that you understand all the kind of nuanced things.

And if you know that’s not an area of expertise, that’s okay. You don’t need to shame yourself into you not knowing. I know nothing about engineering, I’m not going to build my own house. That’s never something that’s going to come up. But making sure you find someone to help you is the most important.

The biggest takeaway that I have for those who say, “I don’t know anything about investing” is that oftentimes, they just don’t ever either learn themselves or find someone that can actually help them.

I promise you that if you find someone who can help you and explain it to you at a very common and basic level, you’ll be much better off as you go forward. The biggest takeaway, though, is do not leave it untended. That’s the worst thing that you can do.

Whitney: Yeah, and again, this is also just start somewhere. I mean, I’ve had… Most of my professional career has been as an investment professional, and I’m still overwhelmed and intimidated by some of the investment management ideas or investment strategies.

They can be very complex, but I guess, I like to emphasize the fact that we don’t like to overcomplicate things. We like to simplify as much as we can when it comes to the investments and when it comes to the investment portfolio, so we don’t have to overcomplicate it.

Dan: Complexity is the devil when it compares to just making sure someone gets started, a more simplified approach, and I would say more importantly, an approach that you can understand.

Make sure that if you do work with someone, whoever that may be, that they can explain it to you in common terms and that level of communication stays standard throughout your time working with them.

Whitney: Oh, that’s a great point. I love the fact that you said that because if you have a financial planner that is just speaking financial jargon and very complicated terms and they don’t explain it, I think that that is a little bit of a warning. They should really drill down and educate you on what’s happening and what these investments are rather than overcomplicate it so they don’t have to explain it.

Dan: If you just look at our industry as a whole, we’re our own worst enemy, right? I mean, duration, beta, convexity, risk premium, all these nonsense words that have their roots in academic language, but people use them as jazz hands to get around what’s actually happening. And I can’t emphasize enough how much that I hate that. And you should be able to talk to someone in a very basic level that they can clearly understand.

The biggest takeaway that I have when building a portfolio for someone, again, and it’s unique to each individual, but when you think about what is appropriate for a couple or a family or a person, it has to be something that they believe in and that’s something that they can stay committed to.

Using all those words that don’t mean anything to anyone besides people at Harvard Business School is not going to help anyone really make progress in their own personal financial life.

So again, throw all that stuff in the garbage, be able to talk to people at a human level so that they can really get confidence in the decisions that they’re making and ensure that they make intentional decisions, which is a phrase that we use a lot.

Whitney: I couldn’t agree more. With every client of mine, I try to take it back down to the fundamentals and the basics of investing and really what an asset allocation is, what is a stock, what is a bond. Because just the basics in understanding those is really important to how you look for planning for your future, too.

Dan: A hundred percent. And you have to be clear on what that is when you get started.

Whitney: And I have the fourth one on here is, “RMDs are scaring me because I have to take them every year, but I’m scared to get taxed or potentially go into an even higher tax bracket with my RMD.” The RMD hovering over the client. I’ve heard this so often.

Dan: Since we’re on Halloween, if we have any Star Wars fans out there, this is the Death Star that comes in for clients when they reach that age. It is the Darth Vader that comes in for them.

And I would give you a couple of basic things as to why they shouldn’t be as scary and things that you can actually do about it. One, you don’t have a choice. The whole point of an RMD, which stands for required minimum distribution, means that the IRS is going to take that pound of flesh whether you like it or not.

So the computation is actually very simple. It’s the ending balance as of 12/31 multiplied by an IRS factor table based on your age. That’s it. That’s the amount of money that you need to take out of that account.

Now, here’s where the proactive tip comes in. If you’re mindful of your income leading up to your RMD age and understanding what those income requirements are going to look like, you can be more proactive. You can do what’s called a Roth conversion in some of those intermediate years to lower that value.

Now, how does that actually work? Well, since it’s a simple computation, your 12/31 value multiplied by the factor table based on your age. If that amount is lower through these conversions, you’ll have lesser of an RMD. What I want everyone … If you take nothing else from this episode, what I want people to realize is that do not accelerate RMDs simply because you do not like taking them. We’ve had clients that I’m working with currently who take their RMDs at exorbitant levels simply because it annoys them, and all you’re doing is generating more taxable income.

So again, make sure that you work with a CPA or your advisor to really understand what you’re going to be required to do and come up with a plan to address those. For this particular generation, for those in their early 60s or mid-60s or even late 60s, the amount of wealth that’s been created, you are sitting on a tax bomb that’s going to have to come due.

There’s a lot of proactive steps that you can take now to avoid that. But remember, it’s not something to be worried about. Just with some proper planning, you can really address it thoroughly.

Whitney: I think that the Death Star of the RMD is the RMD itself but also being scared to get taxed more or go into a higher tax bracket. And I think another tool or technique that we could … I mean, we could talk for hours about this, but another tool or technique I would like to mention is just the qualified charitable distributions or the QCD, because you can use your RMD … you can basically replace what is required as an RMD and put it into a qualified charitable distribution where you are donating to a charity, and you’re not increasing your taxable income and you are doing something good.

Dan: It’s a wonderful, wonderful point, and you get the benefit of the deduction in full and you don’t absorb the income. There are some rules about how that actually works. So make sure you talk to someone. But that’s an excellent, excellent point that if you’re charitably inclined, using the QCD from a tax-deferred account is a wonderful way to go to satisfy that RMD.

Whitney: So we talked about a few of these things that we hear out there that spooks clients and/or prospects or anyone listening, these types of things can spook you about financial planning. Hopefully, we explain that they don’t have to be scary. And just to get started is really the most important thing I want to emphasize. What else did you want to cover, Dan?

Dan: So I just want to spend a minute talking about things that you actually should be scared of. So we wanted to start on the positive side, but I’m just going to give you three quick things that if you’re doing them, you should be a little worried. Number one …

Whitney: So we’re going to just terrify our audience, right.

Dan: We’re just going to terrify … We went from the pleasant version of Halloween to the Michael Myers version real quick, but these are important points that I want everyone to take away that is really critical. So we’ll go through these quickly, but again, if these are things that you should just take pause before actually pursuing them.

So number one: What your neighbor is doing, what they’re investing in, how they’re addressing these types of things? I can’t emphasize this enough that context matters. Every single person has a unique financial ecosystem inside the four walls of their home, whether it’s what’s on their balance sheet, what their expenses are, what they care about, think about things versus experiences. And not that one is better than the other, but they’re inherently different than anyone else you meet, whether they be your brother, best friend, next door neighbor.

So just be wary if you’re trying to follow what someone else is doing without having that layer of context into what is driving those decisions. That’s number one. Number two, and this is a big one with the interest rate cuts that have just come through: Be wary of extreme predictions. Turn off CNBC if it’s on.

Whitney: But I think you should expand on wary of predictions just a little bit so they can understand what you’re talking about.

Dan: What I really mean is when someone says, if this, then that will happen. If they cut interest rates, this will happen. The Fed has to do this. People who speak in absolute language.

There are so many moving pieces to the U.S. economy just as a microcosm, not even factoring in other world decisions that are made by other central banks, other investors, other world geopolitical events, what’s happening in the Middle East, etc. So anyone who speaks with absolute authority that this will happen, if A, B or or C event occurs, I think, does not really see the forest from the trees. There are so many moving pieces that I would just give yourself pause before you take any drastic action based on one of those predictions

Whitney: Hopefully, we have encouraged you to find a financial advisor. Use your advisor to brainstorm or bounce ideas off of and see what they think. What are they hearing from the industry insights that they’re looking at, too?

Dan: And so often the common assumption is often incorrect. And if you look at the history of that event in the past, often what people assume has happened is actually not what’s happened in reality. So there’s a lot of misinformation out there. So just make sure that you take a pause before taking any drastic action.

Whitney: Great point. And the third one? You said there are three.

Dan: Not having a plan, not having a plan. It doesn’t matter how much money you have, if you want … We are not advocating for you living by a plan, but making intentional decisions.

I talked about this earlier and said I was going to come back to it. We want you to at least be aware of how you can improve your future. And that goes up and down the wealth spectrum.

So you don’t need to live by a plan, but understanding how your choices impact you, how they help you execute what’s really important to you and how it represents your values as person or as a family, that’s really, really important.

So having some type of blueprint that you can follow is something that you really need to focus on. And if you don’t have that, you should be a little bit worried about that.

Whitney: Thanks, Dan. Great points, and I hope that we’ve really horrified our audience now.

Dan: We started positive, so … But again, these are all things that you can implement in your life today. They’re not overly technical, but just getting started is the first step.

Whitney: Absolutely. And thank you, Dan, for everything. I thought this was really fun. Thank you to the audience for listening or watching. Hopefully, you felt like this was a treat on our special Halloween episode.

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