Financial Planning Blind Spots

By Dean Barber

May 30, 2019

We’re talking about financial planning blind spots this week on America’s Wealth Management Show. Financial planning blind spots are in your path to and through retirement, and there are many of them. By definition, a blind spot is something that you don’t know exists, and that can cause a lot of accidents.

Financial Planning Blind Spots

I’ve got a quick story for you, and this particular example is a real story. A few years ago, I sat down with a couple, and they were 69 and 62. The husband was 69, and the wife was 62. They worked hard, were successful, and saved a lot of money. But they never really talked about what retirement was going to look like. They never asked themselves, “What are we going to do after work?” or “What do we want life to look like?”

Finally, one day, the guy says, “I think we’ve got enough.” So, they came in and talked to me.

We sat down and I said, “You have plenty of money, you’re going to be able to do everything you want to do.”

So, we laid out the whole plan and I realized something and said, “You have one major problem.”

And they said, “Well, what’s that?”

I replied, “Well, you know, that Social Security check that you’re both counting on? You might as well just assume that’s not going to be there because your tax bill is going to be more than your combined Social Security checks.”

And they’re like, “What, how is that possible?”

Planning for Uncle Sam

I said, “You guys did such a great job of saving! But all of your money is in 401(k), and IRA assets. Which means that you have a partner in that account.”

And the husband, who had the majority of their savings, was going to be 70½ the next year. So his required minimum distributions will kick, and they’ll be so big that it’s more money than they want to spend. But they have to take the money out. And they have to pay the taxes on it, and it’s causing 85% of their Social Security to become taxable!

The wife sits there, and she looks at me, and says, “Oh, my God, why did we work so long? Why did we keep working? Why didn’t somebody tell us that we should be putting money into another area, as opposed to just continuing to blindly put money into these 401(k) plans? Yeah, we have a lot of money, but we’re going to send so much of it to Uncle Sam!”

She was furious. The reason I like that story is not that it was painful for them in this case, but because everyone needs to be aware of financial planning blind spots just like this! It’s a horrific blind spot for people that thought they’d done the right thing.

Taxes, Social Security, and Financial Planning

My concern is many are still working on the assumption, going into retirement, they’ll be in a lower tax bracket. And now what we’re seeing is the vast majority people, even with the new tax policies, are still paying more in taxes. If that’s the case, why in the world would you put pretax money into the 401(k) to accumulate some wealth when most 401(k)s have a Roth option? Granted, that’s after-tax money that’s going into the plan, as opposed to pretax money to grow tax-free. So, it’s going to come out tax-free, and it’s not going to impact your Social Security.

This is another blind spot to Social Security that people aren’t aware of. So, I hope people begin to understand that there are a cause and effect associated with this. And its layer upon layer of complexity that needs to be deciphered. Then we refine, we work out specifically to you exactly how your plan your income plan should be designed.

There are two different timeframes of your life, and each has different blind spots. One is when you’re in the accumulation phase, while you’re working and you’re trying to save money for retirement. There are certainly blind spots that you don’t know exists and things that you should be doing. And then there’s the post-retirement, or the distribution phase when you’re taking money out.

Get the Retirement Plan Checklist

Financial Planning Blind Spots - Retirement Plan Checklist

The financial planning blind spots at that point in your life are different than the blind spots that you had during your accumulation phase of life. We’ve created the Retirement Plan Checklist in the way we did for that reason. It shows the things that you need to be thinking of five and 10 years out, the things that you need to be thinking of two years out and one year out, and then here’s all the different questions and the things that you need to be able to answer.

The Retirement Plan Checklist is designed to help you identify your financial planning blind spots so you can address them head-on. If you’re looking forward to retirement or are currently retired, I encourage you to get a copy of our Retirement Plan Checklist. You need to know what financial planning blind spots exist so that you can do something about it – fill out the form below to get your copy today.

Get Your Copy

Investment advisory services offered through Modern Wealth Management, Inc., an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.