12 Ways to “Blow Your Retirement!”*

Bigger DROPs and FRS* Investment Plan Balances Equal Bigger Mistake Potential ---12 Ways to “Blow It!”  (and How Not To)

Everyone knows "Poor Old Joe" and "Poor Old Mary" -- those folks at your department who somehow blew their retirement moneys and are now looking for their job back. How did this happen and how can you avoid being in the same situation? Read on...

We work with 400+ First Responders (and more) at 165+ Departments around Florida -- 90% of whom are DROP retirees, in DROP but not yet retired, or in the FRS Investment Plan* -- the remainder being private citizens with 401ks, IRAs, trusts, etc.  Unlike 95% of advisors, not only can we spell DROP; we can actually tell you what it stands for (chuckle).  Point is we are fiduciaries, super knowledgeable is this niche, and like that TV ad says, “we know a thing or two because we’ve seen a thing or two”.

While FRS DROPs are still a max of 5 years we have seen a growing number of municipal city DROP plans grow from 5 years to as many as 8 years and a few special situations even longer.  Obviously, with an 8 year DROP the ending account balance can be even larger – and hence, a costly mistake with one’s DROP nest egg can be even more costly with a higher nest egg dollar value.

Obviously at 165+ departments we have heard many different nightmare stories about someone who “blew it” and had to go back to work or try to get their old job back i.e the aforementioned “poor old Joe” or “poor old Mary”.  So how did they blow it? What happened?  

Well, as you know, in today's society everyone has to blame somebody so I am sure there were many different reasons -- it just depends who you ask. However, (drum roll please), the most common one is…

Before I say what “it” is, let me preface it by acknowledging that all of us at some point in our life have probably “blown it” with some of our moneys on some stupid whim. Hopefully it wasn’t a devastating amount of money i.e. small livable mistake – not likable granted, but livable. Hopefully, we learned from it and recovered from it and then some.

However, with normal and larger DROP moneys, FRS Investment Plan Moneys, and so forth, “blowing it” can be dramatically life changing and potentially devastating for not just you, but your family.   

“Advice taken after-the-fact is like taking your medicine taken after death”. 

In our experience, “blowing it” comes in many shapes and sizes. We all know life can throw us some major curve balls(some avoidable, some not): health issues, divorcing spouse, bad luck here, bad luck there, but the harsh reality of it is that most of the time it usually comes back to that person looking back at you in the mirror. "Joe" and "Mary" usually did one or more below to "blow their retirement" -- learn from them:

1. treating DROP as a “candy store” or "winning lottery ticket" source of funds for big ticket purchases -- and most are purchases of highly depreciating assets. (Retirement dreams are great, but let's figure out how to maximize your dreams while not depleting 70%-100% of your retirement nest-egg to pay for them)
2. using DROP money as a source of funds for your “get rich quick” business (whatever the “get rich” fad of the time is - see Murphy's Law)
3. pie in the sky thinking (hope and optimism are great, but sometimes what you really need is some well thought out realistic thinking and planning as well)
4. spur of the moment decisions (usually done without getting solid financial advice and/or really thinking out the consequences)
5. all or nothing decisions ("I am moving all my moneys here" or all in "this" or all in "that" -- when prudently allocating some "here" and some "there" may have been easily done and strategically coordinated by our team for example)
6. not fully understanding the tax consequences of distributions on the above (not only the current tax bite, but the longer-term loss of tax-deferred growth of those moneys -- one of the biggest mistakes we see and usually avoidable. How can you keep more of your moneys in your pocket vs. sending it one way to the IRS? Smart ways and not so smart ways -- let's talk about the smart ways...
7. DIY do it yourself “I know better than seasoned professionals” and I am mainly talking investing (stocks, bonds, etc.). Reality -- people are better savers than investors (and most people are terrible savers). Investing is always fun and a confidence/ego builder in great markets like 2019 and the last ten years, but bad market periods do come(like 2020's Covid market). It is exactly these tough times which lead the typical investor to make bad irrational emotional decisions which can devastate ones retirement nest-egg or conversely cost you huge upside potential.
8. trying to invest your way out of debt, bad decisions, out of control budget lifestyles, and more by “reaching” for higher return potential with riskier and riskier investments (like gas on a fire -- see “Murphy’s Law”)
9. trying to “keep up with the Jones’s” on Facebook who seem to be “living the dream” in all their posts. Reality -- with proper planning, some of you can and do (and we'll encourage you to) -- while some of you shouldn’t and do it anyhow)
10. not having a knowledgeable professional seasoned financial advisor (like The Second Half Team) on your side to bounce questions like "what if we did this?" or "what if we did that?" BEFORE you did them. "Can we this?" "Should we that?" "Smartest way to do this?" "Are we missing something?"
11. not listening, ignoring, and/or not following the advice of your knowledgeable professional seasoned financial advisor about some of the above. Note: Fortunately I can only recall a few examples where our clients completely ignored all our advice and went ahead with whatever concoction they were trying to do -- they all totally BLEW their nest-egg moneys or the vast majority of it. And it all started with "Yeah, but...", or "but my buddy at the department said this..." Sometimes, there are simply smart ways to do things - and not so smart ways... -- and it is not always about being "right" as it may simply be being "less wrong".
12. not having any semblance of a plan let alone a proper well thought “Second Half of Life” Financial Plan and Retirement Roadmap with Mike, Murrell, Alex, myself, and all of us at The Second Half Team, for example.

Healthcare costs, debt, relocating, investments, taxes, travel plans, spouse, kids, parents, ex-spouse(s), Social Security, distribution needs, and A-Z of much more. We will help you formulate your plan(see flyer below), help you stick to your plan, update your plan, review your plan: can you do more? do you need to do less? What if this? What if that?  Is your thinking reasonable or do you need to re-think a few things? Particularly on distribution needs, there are tax consequences to those distributions and there are generally “smart ways” to do them and “not so smart” ways to do them – we can help guide and advise you to the smart ways on that much much more.

In DROP? FRS Investment Plan? Retiring soon? Hoping to? Other? Let's talk.

Already retired? Never hear from your “Advisor”? only get reactive "advice" i.e. when you always have to call them vs. getting ongoing proactive advice and communication?   Let's talk! It is never too late. 

While our office in based in Sebring, FL we serve Ocala to South Beach and everywhere in between (and more sometimes) -- call us! We come to you. Let’s talk and we’ll make it happen. Call Mark at 954-494-2134

“So long tension – hello pension!” Say it to yourself out loud - feels good doesn't it? Look forward talking...

Mark Burnam

Director of Client Services for The Second Half Team    

[email protected]

www.SecondHalfTeam.com

* This article is intended to be an educational piece and are not promises or guarantees of financial security. While The Second Half Team is working with 500+ First Responders (and more) at 200+ departments/agencies around Florida we are independent of and not affiliated in any way with the Florida Retirement System (FRS) and hence any/all information provided by the Second Half Team has not been approved or endorsed by FRS or any Chapter 175 pension plans/board members/or otherwise. Past performance is not a guarantee of future results. This article is for informational or client communication purposes only and is not a solicitation or recommendation to buy or invest in any product or service. Investment in any financial instrument can carry significant risks. Past performance is not a guarantee or indication of future results. Investors are reminded that investing involves risk, including the possible loss of the principal amount invested. You should carefully consider the investment objectives, risks, charges and expenses of Swaine & Leidel Wealth Services, LLC, dba the Second Half Team (the "Firm") before investing. Information on the Firm and its advisors can be found on SEC's website https://adviserinfo.sec.gov. The CRD number for the Firm is 163454. Investment advice is provided by Swaine & Leidel Wealth Services, LLC, dba the Second Half Team, and SEC Registered Investment Adviser. We are not CPAs or Tax Advisors – you should consult with your CPA or tax advisor regarding your particular tax situation. We are more than happy to discuss with them as well if you so desire.