Submitted by Krista McBeath, McBeath Financial Group
For the sake of your retirement planning, I’m going to share with you one of my most painful and costly childhood mistakes. The cost was in damages to my Dad’s vehicle, and the pain was definitely felt on my backside. It’s only one of the two times I received a paddling.
It was over thirty years ago, and I still remember it well. When a friend and I set out to play in the sandbox one morning, I thought I’d discovered the perfect recipe for a “sand pie.” I had a measured amount of sand from my bucket, added just the right cups of water, and then molded them and shaped the sandy mixture on a perfectly flat work area. That work area just happened to be the top of the cab to my Dad’s truck. Although the sand pies turned out absolutely splendid, let’s just say Dad wasn’t so pleased with the resulting sand scratches to his vehicle. Standing in the bed of the truck, the cab made the perfect work surface, or so I thought.
I’ve said before that we are all shaped by our childhood experiences. One of the many lessons I learned from this one was to be aware of the “bigger picture.” This is definitely a lesson I apply to my approach in financial planning.
Looking back, my sand pies were great. I was super focused on making a creation that looked like something my mom would bake and I definitely achieved that. However, I was completely oblivious to the environment and the implications of my actions. It sounds so obvious, but I was a child. But here’s what’s interesting: I see adults looking at their investments with tunnel vision all the time! And let me tell you, this can be much more costly than a child’s mistake!
On a regular basis, I’m approached looking for advice on one aspect of a person’s financial picture. It may be that they just want me to look at their investment performance, they want to see if I can provide better growth. Or, they might want to know when they should take social security. Others have asked me if they should complete a Roth IRA conversion or another consider other tax strategies. These are very valid questions. The problem is, too often, they want me to look at one isolated investment or transaction and provide advice. The problem is, as a Fiduciary, I cannot offer a solid recommendation without looking at the entire financial picture.
As a financial planner, I know that no part of the financial picture exists in a bubble. When taking a holistic approach to providing the optimal path to achieving financial goals, we have to take into account many factors. This includes income, growth potential, risk exposure, liquidity, taxes, health-care costs, required minimum distributions, Social Security, market fluctuations, inflation, survivorship scenarios, longevity, estate planning, and more! Every one of these factors can have an impact on the rest. While one transaction alone may look good on the surface, if it upends the bigger picture, the results could be far from the overall financial goals.
A typical example would be those considering Roth IRA conversions. This is a strategy that many are interested in pursuing to take advantage of relatively low federal tax rates, set to expire at the end of 2025. The idea is to convert IRAs into a Roth IRA and pay the taxes on those accounts now, rather than later when taxes may be higher.
Yes, I’m very adept at tax strategies, and this MAY not be a bad idea, BUT without looking at the entire picture and running in-depth calculations, it may not be advisable. By paying the taxes now, they are giving up those funds and the possible growth that they would provide. This is where it pays to run all scenarios, taking into account the entire financial picture before making a move.
I understand very well that most people would prefer to minimize their tax burden, have huge market gains, and never face asset erosion due to inflation, investment fees, or market downturns. There are many other wishes as well, and I get it. We’d like to have the best of all worlds. Who wouldn’t? But is it available in the real world?
Probably not. But can we achieve what’s really important? With proper planning, I believe it’s possible. See, at the heart of the wish lists are usually a couple of goals that people want to achieve with their finances. Most want to have a comfortable life they can enjoy, without worrying about if they are going to have enough funds available late in retirement. Maybe they also want to use their wealth to provide for their family or a cause they believe in.
I believe that by having a comprehensive plan, people find a much smoother and more efficient path to achieving these overall goals. It’s important to look at the big picture when analyzing any individual investment transaction to see how it impacts the individual’s personal preferences and goals.
If we could go back over 30 years, I think I would have offered some sound advice as a child; “Sometimes in life, everything can look perfectly fine, but if you’re not paying attention to everything around you, it can turn out pretty crummy. I thought sand-pies would be fun, but it might be better to stay in the sandbox and just make castles.”
Krista McBeath is the founder and president of McBeath Financial Group in Normal. The firm covers all areas of financial management, specializing in retirement and financial planning solutions. For more information, you may call 309-808-2224 email: [email protected] or visit their website McBeathFinancialGroup.com
Fee-based financial planning and investment advisory services are offered by McBeath Financial Group, a Registered Investment Advisor in the State of Illinois. Tax preparation and insurance products are offered through McBeath Tax and Financial Services, LLC. McBeath Financial Group and McBeath Tax and Financial Services, LLC