Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

3 Classic Early Retirement Mistakes To Avoid

• Ari Taublieb, CFP®, MBA • Season 1 • Episode 177

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Escape the relentless grind and discover the keys to a fulfilling early retirement with our latest episode. We're peeling back the curtain on the common blunders that can derail your golden years, and providing savvy tips for a life rich with passion projects and strategic financial moves. Whether you're knee-deep in garden soil or knee-high in your latest adventure, this conversation is your roadmap to navigating the less-trodden paths of post-work bliss, ensuring that boredom is just a word in the dictionary and your nest egg remains solid as a rock.

Join us as we chart a course through the complexities of managing retirement funds with an eye toward market volatility and unforeseen expenses. Hear about "BP bulletproofing" your savings, the ins and outs of Roth conversions, and the wisdom of setting spending guardrails that leave room for the joy of giving back. We're not handing out tired, one-size-fits-all advice; our journey together is tailored to those who yearn for a retirement as unique as their fingerprint. Tune in, submit your piercing questions, and let's craft a retirement strategy that mirrors your lifelong aspirations.

Create Your Custom Early Retirement Strategy Here

Get access to the same software I use for my clients and join the Early Retirement Academy here

Ari Taublieb, CFP ®, MBA is the Vice President of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.

Speaker 1:

I've seen lots of people make lots of mistakes when they retire early, but today you're going to get to thank them because we're going to get to use their advice so that you can live your awesome early retirement. These are the classic mistakes that people make over and over again, that I'm constantly hearing about, and so I want to make one video where I just talk about the three classics. What are the main things that you need to think about? There's a lot out there and it becomes overwhelming very quickly. What are the things that you need to think about so you never make these mistakes? So when markets go down, you go, yep, I don't care, I've got a plan for that. Or if you go, you know what, I don't know what tax strategy I should implement. How do I even think through that? What am I going to do in retirement? All those types of things I want to make sure that you have total clarity on. So today I'm going to give you those answers right off the bat.

Speaker 1:

I know a lot of you are very busy people and you want to listen to the podcast to get that answer, and then, if you want the logic behind every single thing I talk about, you can make sure to stay tuned for the whole episode where you are going to get that as well. So I want both of you to be happy if you can put yourself in one of those boxes there. I know some of you will shoot me a note saying, aria, very busy, appreciate the podcast, want to make sure that I get your information, but time is of the essence. So if you can consolidate some of these episodes, be really helpful. Then another person send me a note saying, hey, any chance you can go in more detail. So try to balance for both of you the podcast. I don't want to make them too long. Where you go here, we go again Another guy making a TV show by as a podcast, and that's why I don't do advertisements and other stuff like that. I had the one advertisement for just three weeks of a holistic physical therapy only because I felt it was really applicable where, if a lot of you have tons of assets but don't actually feel like you're able to do what you want in retirement because your body's not in a position to do so well, that's a problem. So I'm only trying to bring you guys what I feel is the most helpful content so you can go live your best life. Now let's hop right in.

Speaker 1:

So what are the three classic early retirement mistakes? So number one is feeling like you should be running. What on earth does that mean? What that means is a lot of you have been working very, very hard for many, many years. You retire and you still feel like you should be running. Oh, I'm not being productive enough. Oh, I'm not doing this. Oh, I'm not. You're allowed to put yourself first, and sometimes doing that means not doing other stuff. What does that mean? The client came to me and said Ari, I don't know what to do with my time anymore. I know I should be playing golf, but I feel guilty playing golf. I feel like I should be doing more.

Speaker 1:

Other people go oh my gosh, are you telling me there's people that are having these problems? I'm loving my retirement, I've got my community, I know exactly what I wanna do, like I just this is. I can't believe people have this problem. It's very real. So you might be listening going hey, I've got no issues Financially.

Speaker 1:

You tell me when I'm in a good spot to retire early, I'm making it happen. Other people go yeah, I think I'm in a good spot, but I'm actually very concerned because I think I might know what I wanna do, but I retire and I'm worried about being bored. And I saw my neighbors be bored and I saw their coworkers and I'm debating an early retirement. So there's the financial aspect of can I make it happen? I think once you have that answer, that's when you can start to actually think about hey, what am I gonna do? The truth is a lot of you are not going to retire because you're going. Oh my gosh, what am I gonna do when I do retire?

Speaker 1:

And I have clients that tell me you can't perfectly plan out your retirement until you are retired and what they're trying to say is, as long as you're still working and very, very busy, you don't really have the time to go pursue these other things that you might really love. You don't know if you'll love them until you do them. So this client financially knew they were in a good spot to retire early but did not know what they wanted to do in retirement. They retired anyways and they did a lot of planning and it does take a lot of work to understand what they wanted from a purpose, a fulfillment perspective, and they were like, hey, it turns out, I really love gardening and I haven't had the time to do it. And so then, all of a sudden, they joined a gardening community and they loved it a whole lot more. Then all of a sudden they went you know what, what, if I traveled and started teaching people about gardening, then they started thinking, you know what, should I make videos and help my local community? Oh, and then it turns out they loved to charity nearby, so they started doing charitable giving that talked to their tax plan, so they started to really kind of put themselves into true retirement mode.

Speaker 1:

But they couldn't have done all that stuff while still working, and sometimes people feel like they should have their retirement mapped out. So tip number one is feeling like you should be running when in reality I want you to walk and jog, and if you want to go for a sprint, you get to go for a sprint. But think about going for a sprint almost like, hey, let's assume you really love what you do. Okay, go do part-time work that you think you'd really enjoy. And all of a sudden you might find, wow, I really miss the fulfillment aspect of work. But you know what? I've got it at this job and it's way less stressful. This is awesome. Other people go. I don't want to work ever again. I work so hard Just make sure I'm financially never going to run out. So very different for all of you.

Speaker 1:

But too many people kind of feel like you're kind of a gerbil on this wheel for years and years and years and it can condition you where you go. Hey, I kind of feel like that all the time. So when you get off that wheel you should feel like you should be running somehow. I want you to go. You know what? Maybe I'm not going to run, maybe I'm going to get off the wheel, look around a little bit and ask myself, what wheel do I want to be on? And maybe it's not a wheel, maybe it's I want to travel the whole world, or maybe it's you know what. That sounds good, but for six weeks, not forever. Or I want a new community, and so don't feel like you need to have it all mapped out.

Speaker 1:

I had a few clients say I felt like I was supposed to and then I ended up just figuring it out because I had time to pursue it. Other people go. Hey, I kind of planned it perfectly and it turns out I didn't like any of that stuff. So I feel like I wish I didn't do any of that planning. Other people say, oh my gosh, I have this one workbook that you guys talk about and we do. It's our post career purpose finder that we have all of our clients go through before they retire, just to make them think about this a little bit more, not to get every single answer in the same way. When we show you planning, we say, hey, here's what the plan looks like, here's what planning looks like. I mean, life's going to change, tax law is going to change, here's how you plan for it.

Speaker 1:

So, number one feeling like you should be running. That's a classic mistake in retirement. Retirement is not about doing nothing. It's also about actually and I'm going to steal the words from a recent client who says I want a second generation of a childhood without adult supervision. I thought that was pretty cool Second generation of a childhood without adult supervision. So I really like that.

Speaker 1:

Number two, the second classic mistake not knowing how much you can spend. So if you go, you know what, I think I'm in a good spot. I've got 2 million bucks. I want to spend 100,000 a year. Maybe there's going to be rental income, pension, social security in the future. I think I'm in a pretty good spot. Pretty good doesn't cut it. And here's what I mean. There's something called the retirement smile.

Speaker 1:

A lot of you know it, but what happens for most of you is you retire early, you have your energy, you have your health, you are ready to go, and then all of a sudden, in your late 70s, early 80s, you just tend to start spending less. Excuse me, you tend to start spending less. It's not a bad thing. I want to make sure that you can spend what you want to spend. But some people go oh my gosh, I think I want to spend 10,000 a month. My software says I'm going to be okay. Okay, the truth is that's what your software says. At the same time, you are not software, and so what's going to happen is you're probably going to spend maybe even more than that, but only for the first five or 10 years when you're really doing heavy traveling or enjoying what you want to do. Then maybe it might come down in your late seventies and your early eighties In your portfolio.

Speaker 1:

It's going to compound even more during that time and then you're going to be in your eighties or nineties going hey, I don't want to die with 10 million bucks. Should I do more charitable giving? What else should I do? I've got medical expenses, so it looks like a smile for most people. So that's why they call it the retirement smile, where you have these certain years that you tend to spend more when you have your energy and health. Then it comes down. Then at the end you go I've got medical expenses or charitable giving or whatever it is. Most people are marrying one number. Don't do that. Don't simply go. Yeah, I think I'm going to be fine, because if you do that, what's going to happen is you're going to be in your eighties or nineties, probably going. Why didn't I spend more while I had my energy, while I had my health, when I wanted to do some of these things, when the money would have been worth more? So not knowing how much you can spend, that's a classic early retirement mistake. I want you to know the most you can spend without running the risk of running out of money.

Speaker 1:

I've told this dumb joke before, but one client came to me and said all right, I'm going to be one of your best clients. I said why. They said well, I've got $5 million and a really low withdrawal rate I mean I don't have to take a lot out of my portfolio in order to live I said you will be one of my worst clients. They said why I thought a low withdrawal rate was good. I said if you want a good withdrawal rate, go work 30 more years. Your plan will look amazing.

Speaker 1:

The goal in life is not to do that. The goal in life is to have the highest withdrawal rate without running the risk of running out of money. So I will tell my clients yes, I want your withdrawal rate to be eight or nine percent. They go all right, that's crazy. I thought there was like a four percent rule. So eight, nine percent sounds crazy. I go oh, yeah, it is crazy. If it was forever, it's for this one year. Then you're going to be less than three and a half percent the next 20 plus years. Then, when some security gets kicked in, you're going to be in the 2% withdrawal rate. Please go spend the money this year. Now.

Speaker 1:

I'm not Mr Nice Guy. I'm the meanest early retirement advisor. I am the first to tell a client you are not in a position to do so. I want to make sure that you do not get mad at us in your 80s. We have tons of money. Why didn't we spend it more sustainably? At the same time, I don't want you to be running the risk of running out of money. There's very fine line there, which is my point.

Speaker 1:

Number three the classic early retirement mistake is people invest too aggressively. Now what does aggressively mean? Aggressively means they invest too heavily in a single position or in a single equity or in a single asset class, and now their retirement is being dictated by what the market does. No-transcript. They have 100% in equities. People go. How on earth could you recommend that I go? It would be a terrible recommendation if they were needing all of those funds to live. But this particular client has a pension and that pension covers the majority of their needs and Social Security covers the rest. So, yeah, they have $3 million in a portfolio that if it went to zero, they would still be okay. They understand the risks of the market and they know if markets don't perform well, that's not changing their income.

Speaker 1:

For some of you, you might have three, four, five million bucks. That is just in legitimate portfolio funds, and there might not be other rental income or Social Security or whatever it is, and so you need to make sure that you have the income you need for the rest of your life. And if a 50% downturn occurred and you didn't have a strategy in place to either take advantage of it from a tax playing perspective, or didn't have perspective, or whatever it is, well, now you're in a really tough spot. So if you have a heavy concentration in one position or you know what, you go. You know what. I just worked at Microsoft for 40 years. I think they're never going away. I love them. We say, hey, great, we love them too. Here's how much we want you to own. Here's, if you sold what you have the tax consequences. Here's the balance and timing of when you might wanna execute X decision.

Speaker 1:

So real planning is what I call BP bulletproofing. What are all the things that are gonna bulletproof your retirement? And for some people it's going out and buying long-term care even if they don't need it, just because if they don't buy it when premiums shoot up, when that state requires it, just like in Washington, well then, all of a sudden, my clients being charged way more than they should, and if we would have just gotten earlier, we could have saved them thousands of dollars every year. Other times it's us going to a client go, hey, we really need you to spend more this year and it's gonna. You have income, you have plenty. We're gonna take a healthcare subsidy and we're gonna take advantage of this before brackets change and implement Roth conversions. This is a year that, instead of bringing in some more part-time income, I'd rather you actually become a successful spender. So understand exactly how much you'd wanna spend in retirement and dream for a moment and kind of, here's the guardrails I want you to stay within.

Speaker 1:

So the easiest way I tell my clients hey, what are the early retirement mistakes to avoid? I do this silly bowling analogy because it tends to resonate with a lot of my clients. First I'll say, hey, are you a big bowler? And no one's ever said yes to this. Let me be clear okay, but I gotta come up with some new ones. But this is one that I've struggled to find a better one and to me, this is the only way to actually learn this stuff. So I told a client I go, hey, what you're wanna do in retirement? Right now you're going bowling and you could hit a gutter ball, getting very unlucky, or markets go down, you could get really lucky, hit a strikes over and over again, maybe even get a 300, which is unlikely. Or you could use the cheat code and everyone goes what's the cheat code? I go, the cheat code is going bowling with the bumpers up. That's what you're doing with us. What you're doing is we're telling you or you could implement this as a listener what we call the guard rails approach, and we don't call it that, it's just called that. What we're doing is we're actually saying markets have done really well.

Speaker 1:

This is the year to go take some extra income from your portfolio and go take that trip that you've been waiting to take. At the same time, we're not Mr Nice Guy and we say, hey, here's the minimum that we're gonna kind of let you spend, meaning it's your money. But if you said, hey, we wanna spend more than this, we'd say, hey, that's kind of that spot where we'd say, hey, now we're jeopardizing future income, but this is the least that if you don't at least spend the, at a minimum spend this, you're gonna be kicking yourself later. So we almost like encourage you if you don't wanna spend, go pay for the groceries of the person behind you, go do other charitable giving, go do other things. And we're also, like I said, not, mr Nice Guy, where we're gonna say, hey, I know you really wanna take the trip this year.

Speaker 1:

Markets are down 20, 30%. Don't take them never. I'm not saying never take these trips. I'm saying let's temporarily scale back on taking these trips for just three, four months, because markets are in this current position. What do you think? And you, michael, ari, we're taking the trip anyways, we don't care. And we say, great, here's the magnitude of that decision. And some people go, wow, that's not a big deal. Like, over time, yeah, it's a few thousand bucks that it could have I use for something else. But I still see, I'm fine, I'm taking the trip anyways. Other people go, wow, I didn't know that it was an $80,000 decision.

Speaker 1:

So the way I phrase it to people is a really, really good advisor should quantify the trade-offs of every decision so you can understand the magnitude of that. Now, for some of you you're like okay, this is what I love doing in retirement. I wanna read tax law, I love prospectuses, I wanna be proactive, long-term care laws, that's my thing. That's when I say don't hire an advisor, if you love doing it, go do it. We are the weird advisors that say everyone shouldn't work with an advisor, and some advisors are like emailing me that list of the podcast, going Ari, stop saying that you're hurting my business and I reply back I don't care. I think it just depends on the stage of life you're in and what experience you're looking for.

Speaker 1:

Everyone does not need an advisor. It makes sense to hire an advisor if they can add quality of life and let you live the life you want to live. So what I wanna make sure you all know is I do not recommend all of you work with us. We work with a very limited number of people, but a lot of you are reaching out, going, hey, can you give me custom guidance on this? And we love that. Like that's why I do the show, and I want all of you, including current clients that are listening, to go yep, I absolutely resonate. I get to know once you become a client, by the way, a pro tip guys, you become a leisure listener and LL. We go, wow, it's really nice listening, knowing, hey, I shouldn't be worrying about that, that's something that is being taken care of, or should I be doing that? Like those thoughts go out of your head, which is really nice.

Speaker 1:

So I mentioned the three feeling like you should be running. That's a classic earlier time mistake Not knowing how much you can spend. So level one is like can I retire? Level two is how much can I spend? Then level three is investing too aggressively or making a big mistake, such as investing a certain way, not having umbrella policy, not being ready to do proactive tax strategy, not having a clear strategy so that, god forbid, if something happens, your wife knows where to get everything, your children know where to go for everything, not creating a huge hassle upon unforeseen event. This is that next level. These are the classic mistakes. There's a whole lot more here.

Speaker 1:

I will tell you a few, just quick. Two classic ones that come to my mind right now, where one client came to me and said Ari, I can't wait to retire. I said what are you gonna do? They said I'm gonna go to Hawaii. I said awesome, what are you gonna do there? They go I'm gonna surf and I'm gonna learn to do all these things I wanna do. They get over there and they go Ari, it's too hot. I go okay, what are you gonna do now? They go well, I think we're gonna sell and move back to Colorado. And I said I'm gonna go to Hawaii Really, and they go. Yeah, I know it's a big financial hit, but it's just we love Hawaii for six weeks, not forever, I go okay.

Speaker 1:

So the premise here is you want to make sure you're doing the right things, but not kind of going all in and I've seen people go I'm tired of my job, I'm out, I don't care what happens, I've got to leave. They go, make a really rash decision and then all of a sudden that they regret it because they just made a big decision. I'd say you know what? Go rent a house for six weeks, see if you really want to live there. If after that you still love it, great, go buy it. But you're not making these big decisions and all of a sudden now you're taking a big loss on a potential property which could be of hundreds of thousands of dollars. Of course, that's kind of number one. The other two, so second mistake this is the big one that I do see a lot is where people reach out and they go Ari, I know I should be doing some Roth conversions. I get really excited.

Speaker 1:

I don't want to pay a dime more in taxes than I need to Tell me exactly what I need to do to minimize my taxes. And I'll say I don't want you to do that. And they go what do you mean? Like I'm coming to you to minimize my tax bill. I love this concept. I go I don't want you to pay more in tax than you need to, but I also don't want you to go wow, I minimize my taxes so perfectly, but I didn't take all these trips I wish I would have taken, and now I'm not in good health and I can't take these trips.

Speaker 1:

So too often I see people let the tax tail wag the life dog. You don't want to do that. What you want to do is go hey, let me go live an awesome life and, in light of that, execute great planning both tax, investment, income withdrawal, estate, do all that stuff. But after you determine hey, what do I really want most out of life? So I want to always make sure that you guys are living your dream life and letting your finances be reflective of that. So hopefully this was helpful.

Speaker 1:

These are the three classic earlier retirement mistakes. If you're looking for custom guidance, of course, this is what we love to do. You can see in the description below exactly how we work with clients. So get a good sense there. And if any questions come up, of course, drop a comment here on YouTube, shoot me an email or just leave a review on iTunes. I know I don't get to work with all of you, but for those that I do get to work with I love it. So please do certainly shoot me an out, drop a comment, leave a review. This is why I love doing the show. Love you, guys.

Speaker 1:

Thank you for listening to another episode of the Early Retirement Show. If you have a question that you want answered in a future episode, you can always go to my website, earlyretirementpodcastcom that's earlyretirementpodcastcom and you can go ahead and submit a question that I'll look to answer in a future episode. Thank you all for listening. Please do rate it, review it and share it with someone who you think would benefit from this information. If there's anyone out there that you know, I certainly appreciate it and I will see you all each week. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only.