Here’s the #1 Trap That Will Ruin Your Retirement

retirement can be one of the best seasons of your life however there's a common trap that if you're not careful can quickly ruin your golden years in today's video I'm going to share with you what that trap is and show you what you can do to avoid it to make the most of your retirement everybody I'm James Canal founder root financial and I'm here to teach you to get the most out of life with your money when you think about retirement you should think of all the wonderful things you'll be able to do whether this is fun and Leisure Time with family time pursuing activity with friends time spent volunteering and in service there are some tremendous things you can do when you retire however there's one Surefire thing you can do to ruin all of that and unfortunately far too many people fall into this trap so what is that trap what is that mistake what's this it's attempting to be as rich and wealthy as possible now don't get me wrong I have nothing against being rich and being wealthy and I think that wealth can create a tremendous amount of opportunity if it's used and viewed properly however the singular focus and the singular pursuit of wealth that's what I see derailed too many people's retirement here's an excellent quote that I actually think summarizes this quite well this comes from Susie Tompkins Beale Susie says this she says if you want to die the richest man then just stay sharp keep investing don't spend anything and don't eat any Capital don't have have a good time don't get to know yourself don't give anything away keep it all die as rich as you can but you know what I heard an expression that puts it well there's no pocket on that last shirt so what's she saying well if you want to ruin not just your retirement but your life make the pursuit of riches in the pursuit of wealth your singular Focus quite simple actually just focus on the money keep working keep maxing at 401K say no to those trips save every last penny that you can this is a great way to build a larger and larger and larger portfolio it's a great way to become richer and richer and richer here's the thing you're never going to arrive at that sense of being rich enough or being wealthy enough and again I have nothing against being rich and being wealthy I think it's a wonderful thing to do so if you view things properly if not though then the end result of these actions is an ever increasing portfolio of value but a more and more miserable life as you're starting to sacrifice the things that actually bring quality of life if you're starting to actually sacrifice the relationships the activities the things that you could be doing to live a rich deep meaningful life so you may die with a tremendous and large portfolio but look back on a life in a retirement filled with regrets now you may be watching this St James I have no problem with that I have no problem spending and doing the things that I want well assuming you're good at saving and preparing and balancing future needs wonderful but for those of you out there who are saying yeah that's me there's this sense of addiction almost to a larger portfolio and needing more to have that sense of Financial Security and saying no to the vacations and no to the things that would be meaningful if that's you then I want to show you how this manifests how this attitude of constantly wanting more and more manifests into little aspects of our life they'll end up pulling us away from actually matters and ultimately ruining that amazing retirement experience we all hope for so let's say examples of how would this actually apply because here's the thing very very few people would actually say you know what my goal is to die as rich as possible but their behaviors would say otherwise I see this manifest itself a lot in terms of a retirement date so you need to work a sufficient number of years to prepare for retirement you should not retire too early if you're not properly prepared and aren't financially secure to be able to do so but here's what I see a lot of people doing they get to a point where they're financially free and they keep going and you look at their plan you say you know what you have more than enough to cover your basic needs to cover your travel to cover the things that you want to do with friends and family yet they keep working now part of this is just an identity issue of not knowing who they would be in retirement but another part of it is almost the sense that hey the larger my portfolio I'm just waiting for my portfolio to be a certain value because then I'll feel secure what does it actually look like well it looks like okay I'll retire next year because that's when my bonus is paid out you know all retire in a few years because that's when I'll be eligible for Medicare and I won't have to pay for private insurance even though they could easily afford it or you know what if I just stick it out a couple more years my pension will be even higher or my deferred comp will be even higher and again nothing wrong with these things by themselves but when you start to realize that these are just justifications and excuses to avoid the bigger issue which you're just needing more and more and more to feel that sense of security that's when you start to realize that that mindset is leading you down a path that could be very detrimental to your ability to enjoy retirement again I'm not saying you should retire the day you have enough money to do so if you love work keep doing it work can be tremendously beneficial I love what I get to do for work I don't even think about retirement because it's something that I enjoy so much it would be part of what my life would look like even if I was fully financially independent and didn't need it so if that's you wonderful but if you don't enjoy work and if it's holding you back from things that are meaningful then we have to start to question what's the reasoning behind some of this and some of the underlying reasons have to do with pursuing more wealth more riches instead of pursuing what's actually most important knowing that we have sufficient wealth and riches to fully fund that here's another aspect of retirement in which this manifests itself is your income strategy now when you retire your portfolio is probably going to make up some portion of the income you live on for the rest of your life now whether you look at things like the four percent rule that says you can take four percent of your portfolio and definitely and be okay for retirement or other approaches you're going to be basing this on something that says your portfolio can support some minimum level of income for the rest of your life let's just use a four percent rules and example yeah have a million dollar portfolio your portfolio if you're using the four percent rule could support forty thousand dollars per year and assume that lasts for 30 plus years I'll see many people live well below that forty thousand per year now granted they probably have other income sources whether it's Social Security or a pension or rental income or whatever it might be but people will live under that now there's two reasons for this one reason is perfectly fine the second reason is an issue in my mind the first reason I think is totally fine is they say you know what James I've got a million bucks I know I could support say 40 000 per year I only need 10 to 20 000 per year to be totally happy between my social security or pension or other income sources I'm doing the things I want to do with the people I want to do them with I'm doing the activities that I want to do I'm spending my days doing what's meaningful to me and I only need 10 to 20 000 per year for my portfolio to do so well great even though you're spending less from your portfolio than your portfolio could support that's not a bad thing if you're able to fully do you want to do it's second instance that is more detrimental in my opinion the second instance is when I see people suppressing how much they spend even though their portfolio could support it and they're also suppressing the things that would bring the most joy and increase their quality of life it's a person who's not spending money on things that would be meaningful in terms of pouring into relationships spending time with family giving back to Charities or causes they care about it's that person where this is a concern because their portfolio could clearly support it but by not supporting it It ultimately comes back to not getting as much life out of their money as they possibly could so when you're looking at this understand there's a difference between living on less than your portfolio could support because you're able to do so and still live a totally great life there's a difference from that 11 unlasting a portfolio can support because you're living out of a scarcity mindset you're overly Frugal you're overly cautious and what it's doing is it's causing fear to make those decisions for you and the ultimate impact is you're not doing what would be most meaningful throughout your retirement so that's how this mindset would manifest itself in terms of your income strategy in retirement another area of your financial plan where this guy might manifest itself is your portfolio now those last few years of your working career it's very easy to get drawn in and almost addicted to a larger and larger portfolio you're typically in your Peak earning years in your portfolio that started at a couple thousand dollars then several thousand dollars and tens of thousands and hundreds of thousands all of a sudden you're seeing some serious momentum in your portfolio and this is due to you earning more money and contributing more to your portfolio it's also due just to the power of compound interest most of compound interest plays itself out on the back end of your retirement so I'll see this happen quite a bit people mentally tell themselves you know once I hit a million dollars in my portfolio then I'll feel okay and they save and they save and they save and they hit a million dollars and they quickly realize I don't feel any different after having a million dollars than I did before Heaven a million dollars you know what it must be because I need two million dollars so I'll keep saving and keep working and keep growing and they hit two million dollars in that same empty feeling shows up and then it's three million and then five million and if you're not careful that mindset of constantly moving the goal posts and thinking some external factor is going to bring you that sense of security or bring you that sense of confidence it's very easy to fool ourselves and we just keep moving the goal posts and we never truly reach that point at which we feel financially secure the problem you're looking at your portfolio as the goal you're looking at your portfolio values the be-all end-all and if your portfolio values the goal you're never going to be satisfied your portfolio by definition could always be larger doesn't matter if you have 50 000 in your portfolio or 50 million in your portfolio there's always a larger number that it could be so if your goal with it is to constantly increase this and grow your wealth and grow your riches you're never going to feel like you arrived you're never going to feel that peace of mind however if you don't view your portfolio as the goal but instead you view as the means to an ends it's the thing that will allow you to fulfill your actual goals of time with family time and service time doing what you enjoy doing that's the transformation that's a mindset shift that has to happen so if you can understand what are your actual goals what does a day look like in retirement to month a year what does time with family look like what do trips look like what do activities look like what is service and volunteer look like start with what actually matters then quantify that how much would I need an income to support all those things okay if that's how much I need an income how much of that needs to come from my portfolio and what you can ultimately do is by starting with the end in mind and the end in mind is not a bigger and bigger portfolio it's an actual tangible goal and vision you have for your retirement how do we work backwards to say how much would I need in my portfolio to support that when you look at it from that standpoint you can quantifiably say here's the portfolio needed to make all this happen and that's the shift that allows you to start going from viewing your portfolio as the BL end-all to view in your portfolio as a means to an end and once you arrive you're in a position where you are financially independent and can actually start pursuing what actually matters most the last big area where I see this mindset show up quite a bit is with taxes now this is a big one because people know that taxes could be one of your largest if not the largest single expense line item during the course of your retirement so it's natural to say this is my biggest expense I really want to make sure that I decrease it as much as possible because the more I decrease my taxes the more I have to fully live and do what I want to do so that thinking is good and we absolutely want to minimize taxes however this bad mindset I'm talking about can easily infiltrate this what does that look like in practice you have let's say a stock with significant unrealized gains and you could sell that stock to fund a vacation that you've really wanted to go along with your family for some years now but you look at it and all you can see is the tax implications even if you have more than that stock than you could ever possibly spend people don't want to sell it because it's going to lead to taxes now even if you have more on that stock than you could possibly spend over the course of your retirement I have seen instances where people have avoided selling it even if it was for a great purpose to do something that actually matters because of the tax consequence it would generate or Roth conversions this is a big example too people to implement Roth conversions most effectively know they want to keep their taxable income as low as possible during their tax planning window so they can move as much from their pre-tax accounts into their Roth accounts without exceeding certain tax brackets so what does that do they get so singularly focused on a Roth conversion strategy that they decrease their income as much as possible so they can implement it now they might Implement an excellent Roth conversion strategy but the byproduct was they took out so little that they weren't able to do the things they wanted to do they sacrificed lifestyle all in the name of saving more money on taxes and again I get where it comes from people are concerned about taxes people are concerned about a significant portion of their retirement being paid in taxes well you should be concerned but you should counterbalance that against what is our actual primary goal what do we actually want retirement to look like and if we ever start letting the Tail Wag the Dog the tax Tail Wag the rest of your life being the dog we've missed a point Point how can we prioritize a life well lived and then implement the tax strategy the portfolio strategy the income strategy and everything else to support that not ever to detract from that now there's certainly going to be cases where trade-offs are needed they're certainly going to be cases where it's not so black and white however going into this with the mindset of how can I prioritize what actually matters is going to take you far further than always prioritizing riches always prioritizing wealth always prioritizing growing your net worth which is not bad in and of itself but if this starts to take you away what's actually important we've missed the point because money should represent Freedom wealth should represent freedom but when you start making moves and decisions that impinge upon that freedom simply because it means less in taxes or a greater portfolio or more income or whatever it might be we're getting it wrong it now means your money is controlling you as opposed to the other way around in the words of Sir Francis Bacon money is a great servant but a bad Master the difference is the mindset and the approach with which we take when we look at our financial plan now if you're watching this and this has resonated and you're saying James I think that might be me well be sure to check out this next video I may right here where I walk through five reasons it might be time for you to retire right now once again I'm James Knoll founder root financial and if you're interested in seeing how we help our clients at root Financial get the most out of life with their money be sure to visit us at www.rootfinancialpartners.com

Channel: James Conole, CFP®

Views: 73,547

Keywords: investing, retirement planning, tax planning, financial planning, retirement, personalfinance, taxes, dividend investing, financial planning at 50, how do I retire?, long-term investing, financial planning at 60, roth conversions, roth ira, IRA, individual retirement account, benefits of investing, pros and cons of investing, donor advised fund, financial education

Id: wVhXkerpf6s

Length: 14min 44sec (884 seconds)

Published: Sat Jul 08 2023