Common Financial Planning Mistakes

By Victoria Tejeda, CFP®, EA

Senior Financial Advisor

March 3, 2022

I just don’t want to make the wrong decision” is a common concern we hear as financial advisors. Often, prospective clients come to us after they’ve already made a mistake and they’re trying to avoid additional ones that could be even more costly. When it comes to your personal finances, there’s a lot of room for error, and this is where we can come in and offer some professional guidance.

Next, I share a few of the common mistakes I’ve seen as a financial advisor, some of which cannot be reversed. In several of these instances, people don’t even realize what happened until it is too late, but hopefully these examples can help prevent that from happening to you.

Mistake #1: Neglecting Estate Planning

Estate planning may be a difficult topic to think or talk about but having an up-to-date estate plan is so important for you and your family’s financial wellbeing. Once you have signed your new estate documents, it may feel like you have accomplished something big. The truth is that you have, but you may need to take additional action based on the updates made.

Aligning these updates and changes with your accounts is an important part of finalizing your estate plan that can easily be overlooked. You may need to update your beneficiaries and retitle accounts or properties. For example, you may have created a trust and identified new beneficiaries, but without funding the trust, or aligning other accounts like Individual Retirement Accounts (IRA) and 401(k)s with these new beneficiaries, your assets may not pass as you intend.

At Modera, we strive to engage with our clients’ estate planning attorneys and be a part of the process. By including us in these conversations, we can make sure your attorney is aware of your assets and coordinate with them so that your estate plan is fully implemented after you sign the documents.

Mistake #2: Neglecting Social Security Planning

There are many variables that can impact what the best social security strategy for your situation is. Waiting until age 70 may be the best strategy for your friend, who mentioned that is when she began collecting benefits; however, taking benefits earlier could be a better choice for you depending upon your situation. Or, perhaps, waiting to take your full benefit until your spouse turns 70, then taking only half of your spouse’s benefit is the best choice. There are so many different options when it comes to social security and there is no one size fits all approach.

Your best social security strategy also depends on your current portfolio. Are there tax implications to waiting to take social security? You might need to evaluate your tax situation. For example, if you wait until age 70 to collect, does that mean you would have to tap into an IRA and pay ordinary income taxes on all those distributions? Could the better choice then be to take your benefit earlier to allow your investments to remain in your IRA and grow tax-deferred a few years longer?

At Modera, we work with our clients to help select the best strategy for each individual situation. This also includes looking into available benefits for someone who is divorced or a widow/widower. We can leverage tools to help calculate the maximum benefit, and then see how that strategy works in coordination with a client’s tax situation. We look at cash flow, tax projections and many other factors to finally recommend a strategy. This is a big decision, and one that we don’t take lightly.

Mistake #3: Overlooking Pension Planning

Pensions can be a very generous benefit for retirees after spending years of their career at the same company. Pensions can also be complicated, with several different options to choose from, such as whether to take your benefits as a lump sum distribution or whether to spread the benefits over your lifetime, perhaps with an option to have payments distributed to a spouse or other survivor once you pass away. Typically, these options are irrevocable once you select them. Choosing the right one may feel overwhelming, and often involves considering your unique  set of circumstances, such as  your cash flow, total investments, age, years of service, whether or not you have a spouse or other people relying on the income, and more.

At Modera, we take a holistic approach to your financial plan, and we look at your entire picture when calculating which pension payout option makes the most sense for you. We take into consideration your need for survivor benefits and incorporate rates of return and values of the different pension options. Our goal is to provide you with all the information you need, presented in a way that you can understand, so that you can make an informed choice.

Let’s Connect

As advisors, our goal is to provide our clients with all the information they need to make the best choices in their financial lives. Clients often come to us after a mistake has already been made, so remember that it is never too early to start working with a planner so we can help catch these situations before they occur.

We encourage you to get in touch with us to learn more about how Modera works with clients to guide them in pursuit of their financial goals.

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