What I Wish My Clients Knew When They Were Younger

You can avoid major traps in your financial life.

If only I could help people make financial decisions based on what could happen, and avoid big pitfalls, they would be less anxious about their financial future.  Here are a few of those pitfalls to avoid.

1. Protect your earning power

A disability that reduces or stops your earning power can damage your financial future forever.  You are much more likely to become fully disabled before retirement than to die before retirement.  Today’s 20-year-old has a 27% chance of collecting disability from Social Security, while only having a 6% chance of dying before retirement. (Social Security Administration’s latest Disability and Death Probability Tables -2016.)

Solution: Insurance to replace your income during your earning years may be the most important coverage you can obtain.

2. Don’t wait to save until it’s comfortable

There are significant benefits to saving early.  It never seems comfortable to save, as it seems something always gets in the way, a new car, kid’s school, or the new job.

For example, if Saver #1 sets aside $5,500, (current IRA limit) or $458 per month, from age 25 to age 55 at 5% return, the account would accumulate to $381,100.

Saver #2 starts saving at age 35 (10 years later) at double the amount of Saver #1, $11,000 per year-it would take 20 years to equal $381,100.

Solution: Target a percentage of your gross income to save.  Start small if you must, then work up to 15%, then higher.

3. Don’t rely on high returns to meet your goals

High returns may not be sustainable. Losses are also possible.

Solution: Save and invest consistently. The amount you save is probably more important than the rate of return you receive.  In the chart below, the blue lines show the value of saving or investing $5,000 per year at 4% (ROR=rate of return), and the red lines show saving $2,500 per year at 8%. Doubling the amount you save creates much more wealth than saving less and hoping for a higher return.

4. Avoid a significant loss in any one asset

The loss may be due to market conditions, dishonesty of others, or bad timing.  Don’t allow a loss of any one part of your net worth to drag all the others down.

Solution: Diversify. Accumulate assets that react differently to varying economic conditions.  Consider cash as an asset waiting for opportunities. Be open to new strategies. You may need to adapt your financial life to new realities.

A client came to our firm for retirement planning advice.  We discovered that 90% of this person’s 401k was invested in their employer’s stock. It had done well over the years, but a significant loss would postpone their retirement for years.  The client diversified to a variety of different assets, and within one month, the stock dropped by 29%, so diversification saved a loss of almost $120,000!

You can recover and prosper!

Even if one of these events comes at you, it does not mean the end of your goals and dreams.  If you measure success based on your personal values, the financial side of life can suffer pitfalls but not affect your quality of life.

One of my most successful clients started her medical career as a highly-paid sub-specialist physician. That involved extra years of school, internships, and residencies, so saving early was not a possibility. She saved ferociously for her first 10 years of practice, setting aside 33% of her gross income, living on 33%, and paying taxes of 34%!

In the 10th year of her promising career, she was diagnosed with a neurological disease that prevented her from continuing her specialty. However, she had purchased the best disability income insurance available when she started practicing, and when she was unable to work in her specialty, began to receive a non-taxed benefit of 2/3 of her pre-disability income.  The result was that she could still save 1/3 and live on 1/3 of her previous income-the tax was gone.

Today, 20 years later, she has found meaningful work as a medical educator, still saves 1/3, spends 1/3, and the savings will provide a comfortable income when the disability policy benefits end at age 65.  


The Unleashed Advisor has been providing financial advice to individuals and small business owners for over 35 years. He has been a Certified Financial Planner since 1992.  Formal financial planning has been provided to clients since 1989. This experience has produced a wealth of interesting events that allows the Unleashed Advisor to understand and navigate the complex and confusing world of finance.

The Unleashed Advisor is motivated by the opportunity to help people reduce the anxiety surrounding financial decisions, subscribes to the principles of servant leadership with clients and readers, and is untethered from traditional concepts of finance or any one strategy to solve problems.

*Unleashed-to let go, to release.  To bring about, to precipitate.

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