The "Retirement Know It All"


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The 10 Biggest Retirement Mistakes?
Written by Joseph Thomas, author of "The Retirement Know-It-All"

1. Not updating your beneficiaries: There is one mistake that many people can avoid. Simply update and change your beneficiary on any asset that is being left to a named person or trust. You may ask yourself, "Why is this so important?" The reason is that people simply forget to tell their families about funds held in life insurance companies, banks, credit unions and other places, and that leads to billions of dollars in unclaimed funds. And it's your beneficiaries' job to solve the mystery if you didn't make it clear enough for them. A strong word of caution needs to be said here in regard to updating beneficiaries, especially if a life-changing event has happened, such as someone died, got married, got divorced, new births, or you are simply making sure you want the right people to get your money. Change your beneficiaries as often as needed.    

2. Naming your Trust as beneficiary on your IRA: I would never recommend naming your Trust as your beneficiary on your IRA simply because the tax rates for a Trust start at 37% on $12,500 of income versus an individual's rate, which is not taxed 37% until $500,000 of income is reached. Many clients tell me that their attorneys told them to put everything they own in a Trust; however, some items should never be put in a Trust, such as life insurance, annuities, IRAs or 401ks, simply because in most cases the money going to a named beneficiary is more beneficial. There are exceptions, but not for the scope of this article.     

3. Not paying for real advice: Sometimes I hear what I call "war stories" from clients, and what I mean is that when I hear these stories that clients tell me, all I can do is shake my head and say to myself, "Why didn't you pay for real advice?" Recently, one of my clients told me that he went on the computer and was getting the forms to set up a Trust for free. Ben Franklin had some great advice, and that was this: "Penny wise and pound foolish." You may interpret this anyway you'd like, but it fits this example perfectly. Here's a client who is worth a significant amount of money, and he wants to make sure his money goes to the right people, but he is willing to risk all that money to save a few hundred dollars instead of going to an attorney and getting real advice. I also have clients who come to my seminars and listen to what I say, and then they go to their local bank and get advice from the 21-year-olds about how to diversify their portfolios or how to leave their money to their family in the most tax-effective manner. The clients calls me and says, "The bank person said you can't do this or that" -- simply because they don't know. This happens whenever I talk about the Stretch IRA privilege; every time, someone who attends my seminar will call me and tell me that there is no such thing as a Stretch IRA because the girl at the bank said she never heard of it before. My point is simple: Get real advice from a real professional, and if you have to pay for it, it's worth the money.           

4. Not understanding taxes on your IRAs or 401ks: If there is one area of confusion for most of my clients, it's realizing that IRAs and 401ks are taxable forever. Not only are they taxable to the person who owns them, they are taxable to the spouse who inherits them and to your children who inherit them. So the tax must be paid -- no matter what. Now, there are ways to reduce or stretch these taxes, and I have made a living teaching clients how to do this. The Roth IRA is also one of the most misunderstood items in the tax code. People tell me, "Joe, you have to pay the tax on an IRA if you convert it to a Roth," and I always say the same thing in reply: "You have to the pay the tax no matter what, anyway." If you convert now, you leave your IRA 100% Tax Free. All I can tell you is that since the tax rates are lower, there has never been a better time to convert your forever-taxed IRA to a never-taxed Roth.

5. Giving control to your son or daughter: Here's another area of "war stories" that you need to know about. I hear this all the time, and generally speaking, this is one of the most detrimental items on the list. It can cost you all the money you have. So many clients tell me they are getting old, so "in case something happens to them," they are giving all their assets to their son or daughter, and their children will take care of them "in case something happens." Now, in theory, this sounds good, but what happens if your son or daughter is married and gets divorced? Half of your assets go to that son-in-law or daughter-in-law you like so much. What happens if your son or daughter predeceases you? Now you have to get your money back. This goes back to getting professional help and paying for that advice. Go see an elder law attorney and transfer assets in the best legal ways that protect you.     

6. Getting free advice from those who want to help you: I originally wrote my book "The Retirement Know-It-All" because I was so sick and tired of being told by clients and potential clients how their son-in-law, neighbor or brother-in-law knew all about the subject we were talking about. Just remember that, in most cases, the same people who want to help you with your money want to help you out of your money. My simple advice here is to get true professional advice from people who have your best interest in mind -- not from the people who have their own interest in mind. I have actually received phone calls from the "new" son-in-law telling me that the advice I gave his 70-year-old mother-in-law wasn't correct. The problem here is that these helpers want their mother-in-law’s money put in investments that suit their needs – those of a 30-year-old -- instead of the safety needs of a 70-year-old. So be cautious with the advisers you want to help you.        

7. The $250,000 emergency fund: This happens a lot now, being that interest rates at the bank are so low. During my initial visit with a new client, I will ask how much the client has in his or her checking or money market accounts, and you would be surprised at how many people I hear are earning only .10% -- by the way, that's a tenth of 1% not 1%. I hear it all: $100,000, $500,000, even $1,000,000 sitting in a checking account losing money. So I usually ask, "Why do you have so much money there?" and it's always the same answer: "It's there for an emergency." I say to them, "What emergency costs $250,000? Your son or daughter is being held for ransom in a foreign country?" They laugh, and then we talk about safe alternatives that can provide a much better solution. The point is, you need to make sure you are aware of where your money is, what your money is doing and, more importantly, where your money is going and how it is going to get there.       

8. Putting all your eggs in one basket: I know you have heard of diversification before, but generally, most people are top-heavy with risk in the market or they have too many at-risk investments when they truly don't need to be that exposed. Many new clients will stop in my office and drop 3 inches of paperwork from their brokerage statements on my desk and say, "Look, Joe I am diversified," when in fact, all of what they own are securities products -- which are subject to loss. My simple question to you is this: Would you take a cruise on a ship that had no lifeboats? That's what you are doing every day with your money in the market. True diversification is what we try to accomplish for every client that comes in our doors.  

9. Not buying life insurance because of public opinions: If people (the general public) really knew how good life insurance was, they would be lined up around the block trying to get into my office to buy as much life insurance as they could afford. Unfortunately, most people have been told by their friends, family and the know-it-alls how bad life insurance is. Nothing could be further from the truth. Why? Because life insurance has many benefits when transferring assets to your loved ones with zero income taxes, and if setup in an irrevocable life insurance trust (ILIT), then there will be zero estate tax, as well. You can make sure that no one is disinherited; you can leave as much as you want to named individuals. I had one client in New Jersey who left 26 named nieces and nephews a good portion of her money in life insurance, and they all received this money free from taxation or bickering. Many clients who own annuities find that they can sometimes leverage the money they leave to their family by using the income from an annuity to pay for life insurance. Many times, we can double your estate by using life insurance. Again, understanding that you need professional advice from professional advisors can be invaluable to you with making sure your goals are reached.

10. Not getting a 2nd opinion on your money: During my 17 years in Florida, I have run hundreds of seminars. In doing so, I have met many clients, and the most important aspect of my seminar is to have the client get a 2nd opinion. You should always get a second opinion when you're seeking advice on your money or a problem you'd like to solve. So many people will come to my seminar, read my book and often meet with me to pick my brain, only to go back to their original advisor and ask their current advisor if they did the right thing for them. Now, of course your existing advisor is going to say, "Yes, I did everything correctly for you," and most likely, they did. Please don't misunderstand my point here -- that is to get more than one advisor and make sure to speak to several advisors. If you only ate at one restaurant, you would not know about how other chefs prepare food differently with different ingredients that might appeal to your taste buds more than your current restaurant. Now, this doesn't mean you can't still eat at the restaurant you really like; it simply means to open your horizons to other ideas. Many people invested all their money with Bernie Madoff only to realize they should have had another advisor and been more diversified -- they would not have lost as much money as they did. My best advice is get a 2nd opinion.

I offer my 45-minute free consultation in my office or over the telephone. Try to get another advisor to give you 45 minutes over the telephone -- it's not going to happen. Give me a call to pick my brain, and we'll see if we can solve your money issues with common sense and years of knowledge. Call me any time: 561-743-0999.