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Retirement Blunders to Avoid

Market Timing and Diversification

Rather than chasing last year’s best performing investments or speculating on the future performance of a limited number of securities, investors are better off focusing on managing the risk of their portfolio by diversifying across multiple asset classes. Unfortunately, many investors own 5 or 6 mutual funds believing that they are properly diversified. But too often these funds are similar in investing style and stocks held. At Total Wealth Planning we follow the Modern Portfolio Theory (MPT) which proves that by investing in 15-20 different asset classes, all of which have a relatively low correlation to each other, a high level of predictability can be achieved which allows for greater wealth creation over time.

Paying Excessive Fees

One of the biggest mistakes is paying excessive fees, most of the time unknowingly. There are advisory fees, those fees you pay an advisor to manage your portfolio, expense ratios which are the underlying costs attributable to investing in mutual funds, and at times commissions and transaction costs. Make sure you get in writing the costs you are being charged.

Buying Annuities

Many investors purchase annuities as a perceived safe investment, offering predictable and guaranteed income regardless of how markets are performing. These promises can be very appealing, especially after seeing the type of market volatility we have seen lately. Unfortunately, many annuities are complex insurance products with excessive fees, conditions and riders making it extremely difficult to fully understand the long-term implications or consequences. In most cases, the income is not inflation adjusted. Once investors place money in an annuity, they often face limitations in getting it back and most times experience surrender charges. Income from annuities are taxed at higher ordinary income tax rates than the lower capital gains rates.

Failing to Understand Taxes

More times than not after reviewing a new client’s tax returns, the lack of tax savings strategies is pretty evident. Tax planning is not done in April when tax returns are filed. Tax planning is a process that is done throughout each year.

For example, continuing to defer income to future years and only focusing on the current year could have the reverse effect and actually push you into a higher tax bracket in the future years. Why is this? At age 72, individuals who have Individual Retirement Accounts (IRA) are required to begin withdrawing from their IRA each based on a provided IRS table. Thus, the growth of an IRA could cause these Required Minimum Distributions (RMD) to be taxed in a higher tax bracket.  This can also result in a substantial increase in your yearly Medicare insurance premiums since premiums are means tested based on income.

At Total Wealth Planning, we help our clients every day answer these important and at times stressful questions. Who’s helping you?

Financial planning is complex and requires the guidance of a trusted and experienced advisor, such as a fee-only Certified Financial Planner™ (CFP®), who plans comprehensively, and with a complete understanding of your particular concerns and goals in life.

For more information about the financial planning strategies we utilize, please visit us at or contact Rob Lemmons, CPA, CFP® directly at 513-984-6696.

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