Eliminate Pre-Retiree Mistakes by Following this Principle

My Rule #1 with clients is, “Don’t do anything you don’t understand!”

This seems obvious, doesn’t it? But you would be surprised how many pre and post-retirees don’t have a good grasp or understanding on the direction of their financial lives. Consequently, I uncover a lot of anxiety and worry in my early client meetings. I observe a collective sigh when I share our commitment to education and the importance of looking at one’s whole financial chessboard. Some may have a background or acumen in financial matters, but most do not, so a genuine yearning for clarity is ever present.

The financial industry is laden with an endless barrage of media talking heads telling Americans what to do with their money. The problem is those giving advice are rarely objective and unfortunately few are rooted in core principles. In addition, they don’t know your very unique situation. Maybe you have found yourself equally frustrated trying to navigate a sea of half-truths and what seem like facts laced with self-serving opinions.

So remember, “Don’t do anything you don’t understand!”

All of the paralyzing arguments and discussions surrounding the recent Department of Labor Fiduciary Standard Rule, over the past 24 months, highlights the need for more transparency and advisors who put their clients first. Makes sense doesn’t it! We laugh at McKell Partners because our moral and ethical center has always been rooted in putting our client’s interests first. Therefore, we constantly preach, “Don’t do anything you don’t understand!” This one principle will serve you well. A determined quest for the truth is a powerful weapon in what sometimes may seem like a game of take-away. There is hope!

Let’s consider for a few minutes why is it so easy to be confused?

Often the accumulation phase financial strategies preached by the Wall Street crowd have little applicability to the preservation phase strategies most retirees feel they should be pursuing as they near retirement. When in the accumulation phase we save and build assets. Conversely, in the distribution phase, we spend or distribute assets. News Flash! Assets react very differently when amounts are withdrawn for income in this later market fluctuating rate of return environment. Hence, the importance of learning about the sequencing of returns risk and how to combat it.

Retirement income planning can be an area of confusion. Remember, it’s not the size of an asset in retirement, but how the asset converts to income that is most important. And what about when you are in the retirement red zone? That’s the period-of-time 5 years before and 5 years after retirement. Sometimes an average broker may not recommend repositioning assets to a more guaranteed safe money strategy, because he is simply not licensed to do so or is unaware of the suitability of these financial instruments.

I am not suggesting all pre-retirees should move assets in pre-retirement to actuarial or fixed-type instruments (life insurance, annuities, etc…). But, advisors should at least be balanced and objective in understanding these tools and teaching clients about their features and benefits. In practice, often the best results can be obtained when combining both actuarial science and investments. But, because many advisors are not schooled on both sides, the public is left with less than optimal options.

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Remember, “Don’t do anything you don’t’ understand!”

Another reason that may color advisory advice is the way many advisors are compensated. Many accumulation based advisors, meaning advisors who in short manage money, are paid a fee or percentage based on the assets they manage. This is common in the industry and at McKell Partners we manage assets this way. However, because of a desire to protect asset management fees, some advisors resist assets leaving their managed accounts for fixed strategies even when it might be better for the client. Be aware of this red flag!

We have seen this first hand when clients seek to develop hybrid type long-term care strategies to protect assets and income from the devastating effects of a long-term illness or cognitive decline. When we explain these strategies, clients often respond, “How come I’ve never heard of this?” Obviously, their previous advisors are either ignorant or in an effort to protect their own compensation, have not educated them on how to reposition assets into these potentially more efficient care strategies.

Is it any wonder why the public might be confused?

Take the challenge to slow down and don’t do anything you don’t understand!

A financial professional worth engaging is one who will exhibit the following four communication attributes:

  1. Slow Down – A financial professional should welcome the opportunity to slow down with you and go at your own pace.
  2. Non-Financial Language – He or she should do their best to check their financial advisory language at the door. If you can’t understand what he is saying then say to yourself, “Is there a quicker way out of here than the way I came in?”
  3. Listening – In short, a financial professional should listen. He should seek first to understand before being understood. This listening should not begin and end with some sort of sales pitch. A true financial professional is also interested in life planning and how your financial life overlays on the rest of your experience in retirement.
  4. Education – A great financial professional should have the heart of a teacher or educator. You should be saying, “Oh, I get that now.” Or “That makes sense.” Or “Now I see why those two things connect.

But remember, part of learning is ownership. You must be honest with yourself and acknowledge the financial risks and economic realities you face. Unfortunately, many do not seriously engage until they have experienced market losses or made a serious mistake. Their awareness also tends to spike when faced with a weighty financial decision forcing them to become a responsible part of their own financial plan. Whatever the motivation, we must not procrastinate preparedness!

Remember, the average 65-year-old could live 20-30 years in retirement. I have many clients in their 80’s who frequently say to me, “Mark, we didn’t think we would live this long!” and yet they are living vibrant, active lives. Understanding this should encourage pre-retirees to become better financial students.

Remember, “Don’t do anything you don’t’ understand!”

Being an active learner and participant in one’s own financial life is essential to success. Abdication is not an option! Yes, our financial world is complicated and finding answers is sometimes difficult, but it’s not too complicated if one has a teachable spirit. As we take ownership to acquire a better understanding of our financial lives we will have a more credible claim on inner peace.

Happy learning!

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About the Author: Mark McKell

Mark McKell is the Managing Partner of McKell Partners, a full-service wealth management practice. Its mission is to “Help individuals and families experience financial peace so they can focus their lives on what matters most." Mark is focused on providing the personalized financial services retirees and pre-retirees need to combat the risks associated with retirement.

With a BS in Accounting from Brigham Young University, Mark has worked as a financial professional since 1985 and has acquired a depth and breadth of knowledge that comes from over three decades of experience in a variety of financial arenas. Those arenas range from public accounting with Ernst & Young to positions as a corporate controller, CFO, and CEO. In 2001, he decided to devote his experience and training to helping people with their personal financial goals.

Away from work, Mark is a dedicated family man and committed to his church, country and community. He and his wife, Susan, have been married for over 35 years, and have four married children including six wonderful grandchildren.

To learn more about McKell Partners and their services, simply visit mckellpartners.com. Visit Mark’s personal blog at markmckell.com where he shares his thoughts about what matter most.

Learn About our Free Pre-Retirement Crash Course

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What will I learn from the Pre-Retirement Crash Course?

  • Your Financial Chessboard – A new perspective of how to look at your financial life.
  • Four important truths in navigating pre-retirement life.
  • The difference between the accumulation and distribution phases of life.
  • How to better visualize your financial future, by “beginning with the end in mind.”
  • Six important guide posts to developing effective financial strategies.
  • Seven important “down the mountain” rules for retirement survival.
  • And finally, eight key insights in choosing a financial advisor and much, much more.