The Retirement Mistake That Can Cost You More Than a Bad Investment

If you’ve been saving and investing for years, one question eventually comes up: “Am I actually on the right track?”

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• Your overall investment allocation • Hidden risks or portfolio overlap • Fees that may be reducing returns • How your investments align with your long-term goals

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Luke Lloyd, CEO Lloyd Financial Group

The Retirement Mistake That Can Cost You More Than a Bad Investment

When people think about retirement planning, they usually think about investments.

What stocks should I own? How much should I have in my 401(k)? Should I buy bonds? Is the market going to crash?

Those are important questions.

But after working with people approaching retirement, I’ve found that one of the biggest financial planning mistakes has surprisingly little to do with picking the “right” investment.

It’s failing to have a plan for how your entire financial life fits together.

Your retirement portfolio is only one piece of the puzzle.

Taxes, Social Security, Medicare, insurance, cash flow, estate planning, required minimum distributions, and investment risk can all interact with one another.

And if you optimize each piece independently, you can end up with a retirement plan that looks good on paper but isn’t particularly efficient in real life.

Retirement Planning Is More Than Picking Investments

Imagine you have $2 million saved for retirement.

That’s a great number.

But what happens next?

You still have to answer:

• When should you claim Social Security?

• How much can you safely withdraw each year?

• Which accounts should you withdraw from first?

• Should you consider Roth conversions?

• How will taxes change once you stop working?

• What happens when required minimum distributions begin?

• How will Medicare premiums affect your retirement income?

• How much money should remain in cash?

• How much investment risk can you actually tolerate?

• What happens to your spouse if you die first?

• What happens if the market falls 25% shortly after you retire?

• How much money do you actually need to leave to your children or charity?

Suddenly, retirement isn’t just an investment problem.

It’s a planning problem.

And that’s an important distinction.

Your Retirement Number Isn’t Just a Dollar Amount

One of the most common questions I hear is:

“How much do I need to retire?”

The problem is that there isn’t one universal retirement number.

Someone with $1.5 million and a $60,000 annual spending requirement may be in a very different position than someone with $3 million and a $180,000 lifestyle.

The size of your portfolio matters.

But so does your spending.

So does your income.

So do taxes.

So does your time horizon.

And so does the amount of investment risk you’re willing and able to take.

That’s why I prefer to think about retirement planning in terms of cash flow rather than just net worth.

Your portfolio isn’t there simply to give you a big number on a statement.

It’s there to fund your life.

The Tax Question Many Retirees Don’t Think About

Here’s where financial planning can become particularly valuable.

You can have several different buckets of money:

• Traditional 401(k)s

• Traditional IRAs

• Roth IRAs

• Taxable brokerage accounts

• Bank accounts

• Real estate

• Business interests

• Other investments

The tax treatment of each account can be completely different.

For example, money in a traditional IRA or 401(k) generally hasn’t been taxed yet. Eventually, withdrawals are generally taxable as ordinary income, and required minimum distributions can force taxable income later in retirement.

A Roth IRA works differently because qualified withdrawals can generally be tax-free.

That creates an opportunity for tax planning before retirement and throughout retirement.

One strategy worth exploring for some retirees is a Roth conversion—moving money from a traditional retirement account into a Roth IRA and paying the associated income tax today in exchange for potentially tax-free qualified withdrawals later.

But the key word is planning.

A Roth conversion isn’t automatically a good idea.

The amount converted, your tax bracket, future income, Medicare considerations, charitable goals, and expected future tax rates all matter.

Don’t Let the Market Dictate Your Retirement

There’s another major risk that doesn’t get enough attention:

sequence-of-returns risk.

Imagine two investors who experience exactly the same investment returns over a 20-year period.

One experiences a major market decline early in retirement.

The other experiences that decline near the end.

Their average return could be identical.

Their financial outcomes may not be.

Why?

Because the first investor is withdrawing money while the portfolio is falling.

That’s why retirement investing shouldn’t simply be:

“I’m retiring, so I need to move everything into conservative investments.”

It also shouldn’t be:

“The market has historically gone up, so I’ll just stay aggressive.”

The appropriate investment strategy depends on your income needs, liquidity, time horizon, risk tolerance, and overall financial plan.

The goal isn’t to eliminate market volatility.

The goal is to build a financial plan that can withstand it.

Social Security Is a Planning Decision

Social Security is another area where people sometimes make decisions too quickly.

Some people claim benefits as soon as they’re eligible.

Others automatically wait until age 70.

Neither strategy is universally correct.

Your decision can depend on:

• Your age

• Your health and longevity expectations

• Your spouse’s benefit

• Your income needs

• Your investment assets

• Your tax situation

• Survivor considerations

Social Security isn’t simply a government check.

For many households, it’s one of the largest guaranteed income sources they’ll have in retirement.

That means the decision about when and how to claim it deserves to be part of the broader retirement plan.

Your Financial Advisor Should Be Looking at the Whole Picture

This is ultimately what good financial planning should accomplish.

Your financial advisor shouldn’t just tell you which mutual funds or ETFs to own.

They should be asking:

How does your investment portfolio interact with the rest of your financial life?

Your investments should support your retirement income strategy.

Your tax strategy should support your retirement income strategy.

Your Social Security strategy should fit into your cash-flow plan.

Your estate plan should reflect what you’re trying to accomplish with your wealth.

And your risk management should protect the things you can’t afford to lose.

That’s what turns a collection of financial accounts into an actual financial plan.

The Goal Isn’t to Have the Most Money

This might be the most important point.

The objective of financial planning isn’t necessarily to die with the largest possible portfolio.

It’s to use your money intentionally.

Maybe that means traveling more.

Maybe it’s helping your children buy their first home.

Maybe it’s starting a business.

Maybe it’s buying a vacation property.

Maybe it’s giving money to charity.

Maybe it’s simply having enough financial security that you don’t have to worry every time the stock market drops.

Money is a tool. Retirement planning is about deciding what you want that tool to accomplish.

Start Planning Before You Retire

The best time to discover a problem with your retirement plan isn’t five years after you retire.

It’s five years before you retire.

That gives you time to make adjustments.

You can potentially change your savings rate, investment allocation, tax strategy, retirement date, Social Security strategy, insurance coverage, and estate plan while you still have an income.

Retirement planning shouldn’t begin when the paycheck stops.

It should begin years before it does.

If you’re within five to ten years of retirement, now is the time to stress-test your plan.

Ask yourself:

If the market dropped 30% tomorrow, would my retirement plan still work?

If taxes were higher in ten years, would my current strategy still make sense?

If I lived to 95, would I run out of money?

If my spouse died first, would the surviving spouse be financially secure?

And most importantly: am I investing toward a specific retirement plan, or am I simply hoping my portfolio is big enough?

Those questions are far more important than trying to predict what the stock market will do next month.

A successful retirement isn’t created by one great investment.

It’s created by thousands of financial decisions working together.

Investing is one piece of retirement planning. It isn’t the entire plan.

The closer you get to retirement, the more important it becomes to stop thinking exclusively about accumulation and start thinking about income, taxes, risk, and how your money will actually support the life you want to live.

That’s where comprehensive financial planning can make the biggest difference.

Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

Colin Symons, CIO Lloyd Financial Group

ADP Employment was 38K vs. exp. 47K.

Factory Orders were 0.9% m/m vs. exp. 0.6%. Core Durable Goods were 0.4% m/m, as expected.

The market took some heart when Trump said the renewed campaign against Iran shouldn’t take long, though he also discussed more strikes. Volume remains low and oil prices continue to drift up

Chinese Services PMI was 51.4 vs. exp. 50.6 while Composite PMI was 52.1 vs. prev. 50.8.

Snowflake (SNOW) is up 24% with big numbers and improved outlook as their bet on AI seems to be doing great. That’s helping give software in general a bit of a bid.

HP Enterprise (HPE) is down -3% despite boosting their outlook.

NetApp (NTAP) is -8% after strong guidance but declining free cash flow (FCF) as spending grew.

Broadcom (AVGO) is -3% as guidance fell short. Interesting the reaction is so tepid.

Five Below (FIVE) is up 5% after beating estimates and raising guidance.

Balance of Trade, Jobless Claims, and Services PMI today.

Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

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This content is intended to provide general information about Lloyd Financial. It is not intended to offer or deliver investment advice in any way. Information regarding investment services are provided solely to gain an understanding of our investment philosophy, our strategies and to be able to contact us for further information.

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