3 Key Planning Mistakes You Don’t Want to Learn the Hard Way | Blog

Over the 17 years of his financial planning career, Jeremy Keil has noticed that clients tend to run into similar issues when it comes to financial planning. A lot of times, these issues happen with clients that he wishes he had met just a little earlier so that he could have made a more positive impact on their financial pictures before they made some major planning mistakes.

To shed light on some of these common problems to make sure that you can avoid making the same mistakes in the future, we’re kicking off a new running series on the dark side of planning. In this series, we’re sharing the stories of people who have had to learn about major planning mistakes the hard way. 

To kick off the series, we’re sharing 3 key mistakes that people make when it comes to their social security and investments — and how you can avoid them.

Read on to learn more!

Mistake 1: Looking at Social Security as One-Size-Fits-All

A lot of people think that social security is just for retirement and retirees, but there are a lot of benefits you can get from it before you’re retired if you meet certain circumstances. That’s why one big planning mistake is looking at your social security as though there’s only one thing you can do with it. 

There are so many different types of benefits you can get out of your social security based on your unique circumstances. For example, those who are widowed can receive benefits from a deceased spouse — or even from a deceased ex spouse! 

That’s why we like to tell people that while we’re not therapists, we are going to ask about your past relationships! Why? So we can find opportunities like these to help you maximize your retirement puzzle. There are lots of possibilities out there when it comes to social security and the benefits that you can take advantage of — as long as you know about them.

If you look at your social security as something that provides you with only one way to use it, you might miss out on some benefits that could really change your financial picture. That’s why you need to work with somebody who is an expert with social security, like us, who have walked with countless people through their social security and know what to look for, and what questions to ask, to help you find what works for you.

Someone Who Learned This The Hard Way

One person who had to learn this planning lesson the hard way was a widower who never filed for their survivor benefit — which they could have done when they hit their full retirement age at 66. Why? Because they didn’t know that this was something they could do. 

With an average of $1,500 a month in survivorship benefits, this means this person missed out on over $70,000 in benefits. That’s a huge benefit that could have made a big difference in their financial situation.

Those Who Did It Right

On the other hand, we have also seen people who have done this kind of planning right. For example, we recently had someone come to us for help with retirement planning because they were let go from their job and were trying to figure out how to accommodate that missed income.

As it turns out, this person was divorced after being married for over 10 years — and their ex-spouse had unfortunately passed away. But because of that connection, they were able to file as a surviving spouse and get social security benefits month after month. 

After meeting with us, that client walked out of our office feeling so much better than they did walking in. Why? Because we were able to figure out a plan and to find ways they could go into retirement with confidence while maximizing their benefits.

Maximizing Multiple Benefits

While you can only get one benefit at a time from social security, you can still claim multiple benefits. When you have multiple benefits, it’s important to figure out the best order to take them so that you can coordinate how you can best maximize what you’re getting.

For example, we once had a couple who came to us before getting married because they wanted to decide the best time to get married. Why? Because the wife was about to turn 60, and if you are a widow or widower before 60, you miss out on the survivor benefit. However, if you get remarried after 60, you can claim the surviving spouse benefit. 

Because of this, it was better for them to wait until they turned 60 so that the wife could file as the surviving spouse for her former spouse who had passed away. Meanwhile, her husband was also able to file as a surviving spouse, since his former spouse had also passed away. 

What’s even more amazing is that later on they can switch over to their own benefits after having received their survivorship benefits. To max that out they’ll likely wait until their Full Retirement Age of 66, or even up to age 70 to really get the biggest value!

Without this knowledge, this couple could have potentially missed out on these huge benefits. Instead, they were able to learn this information and delayed their wedding by just one month so that they could qualify for four different benefits and each have their surviving spouse benefits plus their own benefits. That’s tens of thousands of dollars a difference, which is a huge help to their overall retirement picture.

Mistake #2: Acting on Investment Biases

With behavioral finance, we are able to learn about different biases and different ways that people think and react to their finances. You might even be able to recognize some of these behaviors in your own decision-making — and staying aware of common biases that could be harmful to you is a great way to try and avoid making these mistakes.

Familiarity Bias

One major bias that can put your financial picture at risk is the familiarity bias. This bias is when you feel too comfortable with certain investment simply because you are familiar with it. For example, you might think that the company down the street is a safe investment because you walk by it all the time, or because you have worked there for 30 years. 

But this mindset can do you some real harm. For example, we once worked with a couple who were close to retirement but had all their investments, like their pension and 401(k), in their company stock. While we tried to urge them to diversify so they weren’t taking on so much risk, they insisted that they wanted to keep the stock because they had worked there for 30 years and know that it’s good. 

But in the end, that stock ended up dropping 75% before it got bought out. It never came back up, and as a result, that couple’s retirement unfortunately looks much different because of that decision.

That’s why it’s so important to make sure you’re taking on the right level of risk. It’s unfortunate that so many people are blinded to the level of risk they’re taking because a stock or company seems familiar and comfortable to them. But, as we’ve said before, there is such a thing as a safe stock.

Break-Even Bias

Another bias we see is wanting to break even with your investments. This is where you wait to sell stocks that are declining until you at least break even. A lot of this has to do with not wanting to admit we’ve made a loss, which is why it’s easier to tell ourselves that we will wait until the stock has broken even to move on. 

But you never know what is going to happen with an investment. And when you have this mindset, you likely haven’t done any sort of analysis that suggests that that stock is going to get up and rise to where you want it to be. Many people simply buy because they heard about stocks on the TV or they heard someone else talk about it. And a lot of the time, investors are not financial professionals and are instead making decisions emotionally. 

We saw many people black in 2007 and 2008 with this mindset. But as the financial recession showed us, sometimes, you never get back to the break-even point. Instead, you should be looking at things fresh today and try to forget what you paid for it.

Mistake #3: Expecting The Wrong Things From Your Advisor

When it comes to other areas of life, we know that we need to find a specialist to get the best results.  If your toilet is overflowing you don’t call an electrician. If you have foot pain you don’t call an Ear, Nose, and Throat doctor.

But when it comes to picking a financial advisor many people don’t know there are differences, or how to tell the differences.

We mentioned the person earlier whose advisor didn’t tell him that he could get $10s of thousands in survivor social security benefits. His question was, ‘How come he didn’t tell me?’

Now we don’t know that advisor and weren’t part of the conversations they had, but looking at his portfolio we saw that half of his money was in loaded mutual funds, and the other half was in variable annuities.  What that meant is that the advisor was getting paid, up front, from the company whose products he sold.  They didn’t get paid for giving investment advice, they got paid by selling those two products.

The advisor also did not have any ‘designations.’ There are dozens of advanced knowledge financial designations out there.  Some of them are broad and build a great base of knowledge in the planning industry, others are more focused on specific areas of retirement or investment management. Again, we don’t know this advisor, but it’s also possible that they weren’t fully trained on these different planning techniques.

A Solution: Find the Right Advisor For You

A lot of the planning mistakes we see clients make are avoidable by simply having the right advisor for you. If your advisor is not a CFP® and a fiduciary and is instead someone who is paid to make a sale instead of giving advice, they might not have the knowledge, or the incentive, to give your financial picture an in-depth look and to find the best solutions for you. After all, that’s not what they’re paid to do. 

That’s why, when looking for your next advisor, we encourage you to do your research and look into your advisor’s designations and what knowledge and the services they offer so you can find the best fit for you and what you’re looking for. This is especially important when it comes to these big decisions for your retirement, which you typically only have one shot at. You want to do your retirement right and make the most of it.

For those of you looking for an advisor and need some further guidance we wrote a helpful guidebook, Three Things You Should Know Before Choosing Your Advisor.

If you’d like to learn about more planning mistakes to avoid, be sure to keep an eye out for the next part of our series! If you have any questions or concerns about your planning or financial picture, please contact us today.


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