Combatting Popular Excuses For Poor Financial Decision-Making

Plan With The Tax Man

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.

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Transcript:

Marc Killian:

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 to explain why they do what they do. So, let's talk about that this week here on Plan With The Tax Man. Hey, everybody. Welcome into the podcast. Tony, myself, here to talk investing, finance, and retirement. Tony and myself. I don't know why I can't talk this week. To have a conversation about popular excuses for poor financial decision-making. And really, Tony, I've just got five basic questions here. Look, we're all really good at saying, "Well, I did this because of that." and sometimes we know it's a bunch of BS, that we're just throwing some junk out there, because we didn't think it through or we rushed to a decision. And certainly, that's part of life. It's part of being human. But, when it comes to the financial stuff, especially as we're getting closer to retirement, we really don't want to be making excuses for bad decisions, because we don't really have the time to fix these bad decisions. So, let's maybe try to get it right the first time.

Tony Mauro:

Okay. Yeah. I agree with it.

Marc Killian:

That makes sense? It makes your job easier, too, when we can get it right the first time, because it makes it easier for you to build that plan for us. So, let's talk about a few places where we might get this wrong and make an excuse. And obviously, we're going to start with social security, clearly. The whole turning it on at 62 thing, the excuse being, "I want to get it back before it's gone," Or whatever thing you want to grab onto, other than just saying, "I truly need the money, and that's why I'm turning it on." Okay, that's a valid reason. But just saying, "They owe me. It's mine. Whatever. I'm turning it on." Well, fine, but you could be costing yourself a ton of money, if you do that.

Tony Mauro:

A ton of money. The other excuse that goes along with that is they're going broke. They won't get it. Blah. Blah. Blah. And I just had an email this morning from a tax client, asking this very question. And his email went, "My wife is 67. We're thinking about waiting until 70. I've asked different people. They all give me different answers." Of course they do. And they want to know about when they should take it. Now, most people at the younger ages, they may want the money. That's a valid reason, and there's all kinds of things that go into it.

But what I can say from a financial planning standpoint is ... And we have this and we utilize this for our clients, and your advisor should have this, is there is some sophisticated software that we can run and punch numbers in to show you basically, "Here's what you're going to get over your lifetime if you take it at 62. Full retirement, age 70, whatever you want." And show you how long it takes to break even, because that's most of the time what you're asking, is, "How long do I have to live to break even and actually come out ahead?" And there's a lot of factors, and there's no wrong answer. But, don't just rush to take it at 62, because you think that you're going to get the government. You're going to show them.

Marc Killian:

"I'm going to stick it to the man."

Tony Mauro:

And start taking the money.

Marc Killian:

Yeah, "I'm going to stick it to them." Yeah. No. And you're sticking it to yourself if you do this wrong. Right?

Tony Mauro:

You're sticking it to yourself, because every year you wait, all the way up to the max, which is 70, they give you a little bit of an incentive to wait, because they increase it by about 8%. And then people get confused, and they say, "Well, yeah. But, I didn't get it for eight years or five years." And that's where we could show them with some software, and make it very easy with some calculations. And obviously, we're going to show them in layman's terms, not show them all this other stuff. But, it's easy to show somebody, "If you wait until this, based on your average life, how much you actually could come out ahead." And then it's up to, of course, the client to decide.

Marc Killian:

Exactly.

Tony Mauro:

There's a lot of factors that go into this. There's health, there's longevity in your family, things like that. And like you said, if you really need or want the money now, no one's going to say you can't do it. It just might be a bad decision.

Marc Killian:

Yeah. That's what the stress test is for, the social security Maximisation. Right?

Tony:

It is.

Marc Killian:

You guys can go through that and see where it stands, what makes the most sense. What is your breakeven point? So, don't just make that excuse. Get the answer and then make the decision. Number two, when someone's taking too much risk with their money, often we'll hear excuses like, "Well, I got behind. I'm making up for lost time," which is normal. We all feel that way. We feel like we didn't get enough saved for retirement. But, a lot of times, Tony, you'll hear this when somebody comes in for that initial consultation and you're looking through their portfolio and you're working on building something with them. And you're like, "Oh, you're taking way more risks than you probably should be at this age." and they're like, "Yeah, that's because I got behind." Well, that's the point of the evaluation, is that maybe you're taking more risk, and you don't actually have to. Maybe you're not as in as bad a shape as you thought you were.

Tony Mauro:

That's right. And it all comes down to trying to figure that out and backing into it from a good plan, a good starting point, because it depends on what their goals are and whatnot. And if they haven't defined that and we sit down with them and come up with those goals and what they actually say their risk tolerance is, compared to what they're doing ... And I hear this all the time. We try to tell them, "Well, maybe we can get to these goals by you just saving a little more, because the risks you're taking might be far too large." And risk is a risk. If that risk does not pay off, you're really going to be in a real bad spot, versus "Maybe we better back it down a little bit. Yeah. You might not get to where you need to be, but you're going to have something." That's what we try to go over there.

Marc Killian:

Yeah. Great point. So again, you want to make sure that if you're feeling behind, first find out if you truly are, before you start swinging for the fences.

Tony Mauro:

Right. Yeah.

Marc Killian:

And then your advisor's going to say, "Okay. Look, we are a little bit behind. Here's a couple of strategies that we may need to do to get you to your goal, versus just willy-nilly taking the risk when you may not need to," or as much risk or more risk than you need to. So, sitting on too much cash. They'll often explain it, "Well, I don't want to lose it like I lost last time the market went down." Now, I realize that that's changed a little bit these past couple of years, with cash finally paying a little something. But, if you're still being pretty hesitant to be in the market for your long-term monies, you're doing yourself a disservice, because ultimately, even the cash that we're getting right now, Tony, which is better, it still doesn't keep up with inflation. So, you've got to have some growth monies.

Tony Mauro:

You got to have some growth monies. And this is where a good plan comes into place, because hopefully, you can be diversified. Yes. You can keep some additional monies in cash, especially these days, because it is better than it's been. But, long-term-wise, it's not going to get you to your growth goals, especially if you're a little younger. It's a little different for retirees. But, at the same time, most of the time we'll ask them, "Well, if you lost all your money the last time, what were you actually doing? Were you trying to do all this yourself and took too much risk?", which we just were talking about. "And you had a bad short-term fluctuation in the market. You panicked and sold everything?" So, we try to get them off of that, trying to time the market and not worry so much about that and base it off truly what their plan is.

Marc Killian:

Yeah. Definitely. And I get it. I get having that feeling of, "Oh, I feel better seeing X amount of dollars in the bank," or whatever the case is. But again, basic conversation is that you're losing money safely, even if you are getting four or 5%, which is what we can see right now. Still not truly keeping up with what we know real inflation to be, not just CPI numbers.

Okay. Number four, when someone has no idea what they're invested in or what their money's even doing for them, well, the excuse sometimes is, "I don't know. I picked this," or, "I did that, but it's not my thing. So, it's looked good." Whatever excuse you want to pick, you've got to understand what it is you have and why you have it. Even if it's not your thing, you need a basic understanding of that. And I think a good advisor's going to help explain that to you, why they're recommending what they've recommended and what it's doing for you.

Tony Mauro:

That's exactly it. This is my favorite, especially when people come in and they have money in their 401k different investments, they have no idea what it is in, or even what it's done. And that, just like you said, that is where, just like we talked about on the last episode, a financial advisor that you're paying a fee to is going to be able to help you-

Marc Killian:

[inaudible 00:08:44] Well, think about it like this, Tony-

Tony Mauro:

This is our thing.

Marc Killian:

Yeah. Think about it like this. How many people get into a stock because they hear it's cool, or because their dad loved it, whatever. "Dad had Coke. I want Coke." That's not an endorsement for Coke, by the way, folks. Coca Cola. Coca Cola. Let me clarify. But, you know what I mean? Or GM, or whatever, right? "Well, Dad always drove a Chevy, so I love GM stock," or something like that. That's fine. But, is it really beneficial in your overall strategy? I guess there's nothing wrong with having some favorites, but whenever you're sitting down to craft a plan with your advisor, let them know that there's some personal attachment to that. But also, be open to hearing the fact that maybe you shouldn't have this percentage in just that thing, because it's not helping you, or whatever the case is.

Tony Mauro:

Yeah. And we have clients that did want certain types of investments for sentimental reasons. Nothing's wrong with it, like you say, but it's just part of the overall plan. But, if you're just out there willy nilly and say, "Well, I've got this. I've got that, because of this," or your quote, "excuse," that may not be or have anything to do with getting you to where you need to be with your goals and then your plan. And so, that needs to be looked at. And again, that's where an advisor is going to help.

Marc Killian:

True. And sometimes we'll hear stuff like, "Well, I went to three different companies and bought three different mutual funds, so therefore I'm diversified. Because I don't really understand this, but I figured that has me covered. So, I covered myself by buying three different funds from three different companies," and somehow thinking that you're diversified and oftentimes you're not. You've really bought three mutual funds with the same junk in them.

Tony Mauro:

Yeah. With the same holdings. Yeah. Absolutely.

Marc Killian:

Exactly. All right. Last one, Tony. If you're working with a professional, an advisor, broker, whatever, and you're not sure that you want to move on, but you feel like you should. First of all, if you're already asking yourself that question, if you're already saying, "Maybe I need to be looking for more out of my advisory relationship," then some things' clearly bugging you, and you need to get to the bottom of that with the current one. But, if you're not willing to walk away, just because you've had a good relationship or it's been a long relationship, the excuse sometimes is, "I just don't want to be hurtful," or, "They've always done me right,' or whatever the case is.

And I make this joke often, Tony, but that's like saying, "Well, I keep going to my pediatrician, even though I'm 60 years old, just because he's a good guy or a good gal." Well, they're not the right doctor for you anymore. They work with kids. You know what I mean? So, you need to see a doctor who's helping older folks and things of that nature that specializes in that. And I think the same thing applies with what you guys do, whether it's the specialty thing or if it's just you're not getting out of the relationship what you should be at this time of your life. Don't be afraid to look around for a new one.

Tony Mauro:

Yeah. And I think if you're asking yourself that question, just like you were mentioning something is bothering you, I think what you need to do is first of all, figure out what that is. There's some part of the value proposition that you're not getting as a client and that you maybe think you should. First thing you probably should do, if you really want to bring it out into the open is talk to the advisor about it and just tell him or her that, "Hey, I think I should be doing this. Does this fit in what you do and how we're doing it?" And if not, don't be afraid to say, "Well, I think I need that and I may want to go to somebody else." That's the first thing, because obviously it's not going to get better unless something happens.

Marc Killian:

It gets addressed. Yeah.

Tony Mauro:

Yeah. Communication or something. I had a client like that, and he came over and as a relationship developed, really, I found that he did not want to do financial planning. All of a sudden he came in and, "Oh, yeah. All that's great." Blah. Blah. Blah. But, really all he wanted to do was, he was a TV watcher, and he constantly wanted us to find equities for him that outperformed the S&P. And we just finally said, "You know what? We can't do that. I could admit it. I'm not a stock picker. I'm a planner. And if you can-

Marc Killian:

You're not a day trader. You're not a day trader. You're a broker. Yeah. No.

Tony Mauro:

Yeah. That's just not where I want to be. And I tried several times to get him and his wife together to lead the plan. Didn't have any interest in that. Finally, I told him, I said, "You know what? I can't be of value to you. You need to go either do what you want to do on your own, or find another advisor because ... " So, I actually severed the relationship, because I said, "As a fiduciary ... " We talked about that a little bit earlier. "I can't provide you any value. You're paying me a fee and I can't give you what you want."

Marc Killian:

Right. No. And that's great. You've got to have the right relationship for what it is that you're looking for and being able to receive. So, even if you are older and you know, need a financial advisor who specializes in retirement or building those kinds of strategies, but you're not willing to receive that information, and, or, work the plan that you guys create together, then you're just wasting everybody's time and money. So-

Tony Mauro:

And money.

Marc Killian:

Yeah. So, it's good to have an advisor that can give you ... Look, we all want to have our hand held from time to time, but you also need that person that gives it to you straight. Like, I changed my cardiologist after having heart surgery, because the other guy I had, while a fine doctor, his delivery style didn't work for me, Tony. It wasn't communicating well for me to do the things I needed to do for my recovery. So, I switched to a different cardiologist and this guy got tired of my junk and he started getting in my face. And it worked, because that's what I needed. I needed someone to be a little bit more stern with me. You'd think that you would need someone to be stern with you when dealing with a heart situation, but I did. And so, therefore, I had to find the right doctor. Same thing. Same exact thing.

Tony Mauro:

Same thing. Absolutely. Obviously, everybody knows there's a lot of advisors out there. You've got to find somebody that is going to be your style, so to speak. Because otherwise, it's like any other relationship, just like you were saying, it doesn't work for you,

Marc Killian:

Doesn't work. Starts to fizzle. You dread going. You don't really follow through with things. Whatever. So, those are some things to think about folks on our conversation this week. Don't make excuses for yourself. We're humans, we do it pretty darn easily. But, when it comes to your finance, try to eliminate those, so you can get it right the first time and have that happy and enjoyable retirement future that we all want. And if you need some help with that, you need to find the right person for you, well sit down for a consultation with Tony and his team and see if they are the right fit for you at yourplanningpros.com, that's yourplanningpros.com. Tony's been doing this for 30-plus years, a great resource for you to tap into. He's a CPA, a CFP and an EA. And again, a great resource for you to reach out to at yourplanningpros.com. Don't forget to subscribe to the podcast, so you can catch future episodes as well as past episodes. And Tony, my friend, thank you for hanging out.

Tony Mauro:

All right. We'll see you on the next episode.

Marc Killian:

Yes, sir. We'll catch you next time here on Plan with The Tax Man with Tony Mauro.

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