Combatting Popular Excuses For Poor Financial Decision-Making

Very often, we see people who know that the financial decisions that they’re making aren’t the best decisions, but they try to create excuses or explanations for why they’re doing what they’re doing. Let’s talk about why these excuses usually don’t hold water...

 

Helpful Information:

PFG Website: https://www.pfgprivatewealth.com/

Contact: 813-286-7776

Email: info@pfgprivatewealth.com

 

Disclaimer:

Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

 

 

Marc:

This week on the podcast, we're going to talk about combating popular excuses for poor financial decision-making. Very often we see people who know that they've made some poor financial decisions and they try to explain it away or create excuses as to why they've done that. So we're going to talk about that this week from things the guys have seen and maybe that'll shed some light on your situation right here on Retirement Planning Redefined.

Announcer:

The rules of retirement have changed. No longer can most of us rely on Social Security or a single pension to fund our futures. We're living longer and retirement doesn't just last a handful of years anymore. Instead, you might stay retired for 20 or 30 years and maybe even more.

We need to look at retirement through a new lens with fresh eyes, with a new approach and plan of attack. Here to answer the call are financial advisors John Teixeira and Nick McDevitt of PFG Private Wealth Management, serving you throughout the Tampa Bay area. This podcast is Retirement Planning Redefined, and it starts right now.

Marc:

Hey, everybody, welcome into the podcast with John and Nick from PFG Private Wealth here with me to talk investing, finance, retirement, and hopefully avoiding some of these poor financial decisions that everybody gets into. It doesn't make you a bad person, doesn't mean you did anything wrong. But if we can learn from the mistakes of others, I forget who said that, was it, Einstein, probably a little bit better off than making some of these mistakes ourselves.

And of course, the guys helping many families retire, so they have seen a lot of this stuff and a great resource for you to tap into. So if you've got some questions, make sure you reach out to them at pfgprivatewealth.com. That's pfgprivatewealth.com. What's going on, John? How are you doing this week?

John Teixeira:

Hey, I'm doing all right. I'm doing all right, doing real well. So I think you mentioned the end of the last podcast with new puppy. I don't think we talked beginning, but yeah, new puppy is doing well. My girls are attaching to it quite a bit. It's funny, because if my wife and I go to feed it, they're like, "No, no, no, no, I'll feed it. I don't want you bonding with it."

Marc:

Oh, nice. Okay.

John Teixeira:

They want to make sure the dog's their friend.

Marc:

Their dog.

John Teixeira:

They're pretty excited. It's really cute.

Marc:

Nice. Very cool. Very good. Well, Nick, my friend, how are you doing?

Nick McDevitt:

Pretty good. Pretty good. Speaking of dogs, I was with family this past weekend and my sister-in-law reminded me that I volunteered to take care of one of their dogs when they went out of town soon, and I had totally forgotten. So be on doggy duty for about 10 days, which I'm actually looking forward to, so it'll be fun.

Marc:

That's cool. Yeah, very good. Good stuff. Your sister live far away, or do you have to?

Nick McDevitt:

It's brother and sister-in-law. They're down in Sarasota, so yeah, not too far. The last time I took care of this dog though, it was pretty funny because he's not used to being in a city setting, so he's just used to being in his backyard. There's so many other dogs around, all the scents. He wouldn't pee for almost two days.

Marc:

You're driving him nuts, huh?

Nick McDevitt:

Yeah. Yeah. So I was taking him out every two hours to try to get him to finally go, so I'm hoping this time it's a little bit smoother.

Marc:

There you go. Very good. Little dog stories here to kick things off. Always good. So man's best friend. Well, let's get into some conversations here, guys, about these poor decisions. Hopefully you won't make any poor decisions when it comes to the dogs, but let's talk about some of these from a financial standpoint, guys. I got some classics here I want to share with you, and then you guys give us your take on what you guys see and how you guys react or help folks through these types of things.

So for example, when someone wants to start their social security early at 62, a lot of times the excuses or the explanation is, "Well, they owe me, right? Or I've paid into the system. I want it back before it goes bankrupt," all that stuff we've been hearing the last couple of years.

Nick McDevitt:

Yeah, definitely heard this one or 100 times, but history has shown that if you can afford to wait, one thing that people are noticing, I would say we have less and less clients retiring pre 65, unless there's something that happens, maybe a health situation or loss of a job and they need the income at 62. That's one thing.

Marc:

Well, that's the thing, right? If you're talking about excuses, Nick, if you need it, you need it. But if you're just turning it on because you feel like you want to stick it to the government or whatever, you could be costing yourself a lot of money.

Nick McDevitt:

It has a huge impact over time, especially in the last four or five years where the inflationary raises that have been given for social security have been much higher. People that waited because they get that inflationary raise and people that are collecting get the inflationary raise, but it's compounded when waiting because you get the normal increase plus the inflationary raise.

The amount of benefit for people that have made that decision to wait has been substantially higher. And we've had a lot of people that have clicked over to that 64, 65, 66 and have started to take their benefit or will be. And we look back at those numbers. And to a person, they've all been extremely happy that they waited because the benefit is substantially more.

Marc:

And John, I mean, if you are thinking about turning it on, don't forget that if you decide that you're bored and want to go out and earn some money or something like that, there's going to be limitations there too. There's more than just the haircut that you take from taking it early. There's some other things that go along with that.

John Teixeira:

And that's one of the things. Typically, as you guys already mentioned, when someone brings this up, it's really what do you need it for or why are you taking it? And the big thing is are you still working? And if you are or if you plan to work even part-time and you make above I think it's roughly 20 to 23,000 or so...

Marc:

Around 20, 21. Yeah, somewhere in there.

John Teixeira:

If you make above that, there's what they call a recapture. So they'll take half of it above that amount. So it's definitely something to consider is are you working currently or do you plan to go back to work? But once you hit your full retirement age, you are able to take your social security and not worry about that.

Marc:

Yeah, sky's the limit then, right? You can make as much as you want then.

John Teixeira:

But beforehand, definitely something to consider. And what we typically do for clients on this, and we'll offer it to anyone that's listening, is we can run a social security max strategy, which helps people see it. It's one thing to say, "Hey, I want to take it now." But once they see it, and like Nick mentioned, that compounding is really important with waiting, with the cost of living adjustments that you get.

And especially we talked last time about inflation and how that's gone crazy, so you really want to plan correctly. Once people see it on paper, it tends to slow them down from taking it, but everyone has their different opinions.

Marc:

Yeah, for sure. But again, if you're doing it just because it's like, hey, I want to get it before it runs out of money or something, don't make that excuse. Run the numbers, as John said. Get a stress test maximization on that social security strategy before you turn it on. And then if you need to turn it on, well, certainly turn it on. That's the point. All right, number two, when someone is taking too much risk with their money, we often hear things like, "Well, I'm behind. I'm making up for lost time." We talk sports often on here as well.

If you're thinking about baseball, the home run kings, typically the people that usually hit the most home runs, are also the strikeout leaders because they're swinging for the fence a lot. And so just be careful when you're doing that. Whoever wants to take this one, feel free to jump in here. But if you're behind, that's one thing. A lot of us do feel that way. But I guess the first question I would have is, how do you know you're behind? Is it just a feeling or have you actually gone in and sat down and had your numbers ran?

John Teixeira:

Yeah, this is a really common one. When talking about getting these, I got this a couple of months ago and the person wasn't behind. They felt like they were. But when we started doing the planning, they weren't. But a big thing with this, especially trying to get more aggressive is it's going to take you outside of your risk tolerance. Can't stress enough that you really want to stay in with whatever risk tolerance you have.

Because if the market starts to fluctuate and you can't handle it, so if all of a sudden we have a COVID type year or whatever might happen, the market's down 20, 30% and you start to panic and you go to cash, and then within a month later a rebound, you just missed out on all that upside. One of the first things in investing is understanding your risk tolerance and investing in that type of portfolio so you don't make mistakes.

You really don't want to chase any returns or anything like that and feeling like you got to catch up. Because ultimately if you do that and you're not a risky investor, you're going to end up even more behind.

Nick McDevitt:

And oftentimes too when people are actively making that decision like, "Hey, I'm going to take a little bit more risk," and when you kind of flush it out and you talk about it, they're often under the impression that they will exit at a certain point like, "Oh, I'm just going to wait until I make X amount or I get this amount and then I'll back off."

But when you're in the midst of things going up, it's very difficult to walk away. And trying to time things, having that perception that they can time it is extremely difficult. And the overreaction that tends to happen after that just puts them into a highly volatile situation. Human behavior comes in and just makes it very difficult to be able to even benefit from it, even if it does work out.

Marc:

I mean, getting that risk analysis done to find out, okay, am I behind and how much risk can I take or should I take, feel comfortable with taking? All of that is part of sitting down with a qualified professional to find that stuff out. And I think we all, human nature, a little bit feel like is once you get to 50, I think that switch kicks in and we're thinking, okay, I've got to start thinking about retirement. And boy, I haven't done a whole lot, whether you have or you haven't.

So again, run the numbers, sit down and have that analysis done. That's going to help you understand whether you're behind or not. So let's go to the third one here, John. How about this one for you? When someone has way too much cash, often it's, well, I've been burned, right? Or maybe even more recently right now is, hey, it's a pretty decent rate. With the interest rates rising up, I'm getting a decent rate at the bank, so why not just sit in cash?

And that's fine, but it's also not going to last real long. And you're not going to just automatically get that 5% or whatever that you'll see ads for right now. If you just have money sitting in your savings account, check your savings account. It's not generating that much. You're going to have to talk to the bank about a different product. They're not going to automatically just increase your savings account interest rate.

John Teixeira:

And this goes back to the risk tolerance as well. The first part that you said here of people being wary of the market or they've lost before. So this is what happens, and we've seen clients that lost money in '08 and doing plans for them and introduced them in 2016, 2017, and they were in cash for almost eight years and they'd lost out on some big runs.

So if they were invested properly, it wouldn't have been the issue. So you definitely want to, again, risk tolerance, get the plan down, stay the course, because long-term history has shown us that you will in a portfolio basically beat the cash just sitting in cash all the time.

Marc:

Oh yeah. I mean, it never does. No matter what the interest rate, even people who live through the late '70s, early '80s when interest rates were really high, 12, 13, 15, 16%, it still wasn't beating inflation then. I mean, that's the thing with the interest rates at the bank, they never outpace inflation ever. It's there for that safety portion.

John Teixeira:

Yeah, exactly. And as far as people that are with money on the sidelines and they want to stay in the money market getting some rates, you're right, it's not going to stay like that forever. They're trying to force these rates ultimately down at some point. The thing is going to be the timing of when do you get back in.

So we have some clients that earn that scenario, and we're doing a combination of cash and also dollar cost averaging into the market to give them best of both worlds right now to take advantage of the nice cash that they have, nice interest rate. Again, not just sitting in a savings account in some type of money market, but also trying to take advantage of potential upsides in the stock market.

Marc:

Yeah, for sure. I mean, again, all this stuff we're talking about this week is they sound like a good excuse, but when you really break it down, again, you need to have that analysis before you start rationing away these decisions that you've made. Nick, how about this one for you, my friend?

When someone has no idea what they're invested in, which is often people come in and say, "Hey, here's my stuff, here's what I got," often the excuse is, "Well, finance isn't my thing, or I was told to get this or that, and I don't really know what it's doing for me." And that's certainly not where you want to be. You want to understand what you have and why you have it.

Nick McDevitt:

Having had this conversation many times, one of the things to try to point out to people is that we can't care more about your situation than you do. So we don't necessarily need you to be reading The Wall Street Journal every day. But at the same time, we want there to be a level of engagement. We want there to be questions. And really I think the trend of the last five to 10 years is people realizing that strategy and planning when you zoom out is becoming more and more important than maybe the underlying investments.

Even if you look at a simple example such as target date funds and 401(ks), the tools that are out there make it easier and easier for people to be able to put something on overdrive to a certain extent versus 10 years ago, a default strategy might be a money market fund that back then was paying 1% and people start putting money in. They don't realize their money's not doing anything, where a lot of times the default strategy these days is going to be a target date fund and there's some actively managed things happening inside of that to help them move it along.

But maybe they haven't incorporated in or understand like, "Oh, 401(k)s have Roth options now. Have you started to do that? Or, hey, maybe your company has some discounted stock plan that you can participate in." And if it's a publicly traded company and you're getting a 10 or 15% discount right off the bat, you almost don't even have to do anything. You just need to make a really basic decision to do it. So the level of engagement from a strategy standpoint is an important thing, and the underlying how to get exposure to those markets has become easier with time and technology.

Marc:

Yeah, great point for sure. All right, John, any final thoughts from you on that same one from Nick?

John Teixeira:

Yeah, yeah, to add to that, something we've seen right now what Nick mentioned with the cash or someone sitting in money market not realizing it, we've seen that with annuities as well. A lot of annuities right now, the rates have gone up and the products look pretty attractive. But some client, if you're not looking at your stuff, you could be in an older one where today's rates might be five, six times better than what you're currently getting.

So it's important to take a look at what you have, do a quick snapshot of it and just understand, "Hey, this is where I'm at. Is there anything better I could be doing," which everyone should do at some point.

Marc:

Yeah, for sure. And there's usually little tweaks. Sometimes people think, well, I probably should sit down and talk with a financial professional, but it's going to be this major undertaking or whatever. Not always. Sometimes it could just be little tweaks and whatnot. So go check them out online, pfgprivatewealth.com. That's pfgprivatewealth.com. You can book an appointment right there on the page, top of the page on the right-hand side there. There's lots of tools, tips, and resources.

You can click on the podcast page to check out past episodes or subscribe to us on whatever platform you like using, check out the blog, and so on and so forth. So a lot of good information there at pfgprivatewealth.com. And again, you can subscribe to the podcast on whatever platform you app you like using, Retirement Planning Redefined. Thanks for hanging out with us this week. We always appreciate your time. For John and Nick, I'm your host, Mark, and we'll catch you next time here on the show.