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The 5 Biggest Financial Mistakes I See

By Michael Nedreski

All investors, from young graduates to experienced shareholders, can make financial mistakes. New investors lacking information depend on "hot tips." But more seasoned investors are just as likely to make emotional decisions, focusing on the short term and timing the market.

I have helped some of my clients navigate through financial difficulties to reclaim a solid financial footing. While some may require additional support and guidance, overcoming these challenges is entirely possible. To help you on your journey, I've identified five major financial pitfalls that investors often encounter, along with strategies to sidestep them. This knowledge can empower you to make informed decisions, seeking to endure your financial health remains robust.

1. Paying Too Much in Taxes in Retirement

Thanks to the myriad ambiguities and complexities that come with taxes, many retirees may be unclear about what tax breaks they may qualify for, what parts of their retirement income are taxable, or how diversifying their portfolios can be tax-advantageous. As a result, many retirees inadvertently overpay on their taxes when they don't work closely with a financial advisor.

There are a few things you can do to educate yourself and avoid overpaying on taxes. For one, carefully review all your retirement finances to verify the tax bracket you belong to. While you're at it, learn what taxes you owe at the state level, as tax liability laws differ across the country. You should also re-check your income for liability on interest, capital gains, and dividends.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

2. Not Carrying Adequate Life and Disability Insurance

Many resist taking out life and disability insurance policies because they fear the monthly premiums aren't worth the expense. However, life insurance helps many adults fund their children's education, pay funeral directors, and settle mortgages. Disability insurance kicks in when they become ill or functionally incapable.

Arrive at the right balance by asking some questions:

• Does your workplace include life and disability coverage?
• How much do you need to maintain your current lifestyle?
• Are your funds set up so your inheritors can take over after you've departed?
• What are the commonalities between these factors?

When you ask that last question, try to determine how you can use the answer to streamline spending.

3. Failing to Have a Comprehensive Estate Plan

Everyone should have a blueprint for their money after death. Without an estate plan, the government makes all decisions about where your money goes. They'll assign your child's guardianship to an outside party you may have never met. There may even be tensions between you and your extended family.

Start working on your estate plan. Draw up a will to get in the records; you'll have the chance to change it. Consider a living will and naming someone to take over as power of attorney to avoid further financial mistakes.

4. Not Planning for Long-Term Care Costs

Many people assume their current healthcare and Medicare will cover long-term medical needs. Others believe they don't need to think about them because they're in great physical shape, even though 52% of those 65 or older (1) will eventually have serious health problems.

Failure to account for your caretaking needs can be a costly mistake. Look at your current long-term finances and determine what future expenses might look like. Talk to family and friends about what works for them. Without a plan, your family could potentially lose everything.

5. Not Knowing When to Take Social Security

Social Security is a safety net. However, many people are unclear on distributions and when they should start drawing benefits. You can start at age 62, but if you're in fair physical shape or financially comfortable, you can delay disbursements until age 70, increasing your monthly benefit.

To decide, ask yourself:

• Do you plan to work for a while?
• How long do you expect to live?
• Will you still have life insurance?
• Can you earn more income while waiting to cash in Social Security?
• What family members receive your benefits?

There are no boilerplate answers to these questions, so be honest when answering.

Get Help to Avoid Financial Mistakes

We at White Oak Wealth Partners, based in Erie, PA, help small business owners, executives, entrepreneurs, and their families pursue a bright financial future. With over 30 years of experience, we provide clients with insightful business and financial guidance, infused with an organic approach and personalized care.

To get started, contact us by calling 814-835-4551, emailing MICHAEL.NEDRESKI@LPL.COM, or schedule an appointment here.

About Michael

Michael Nedreski is managing partner at White Oak Wealth Partners, a specialized financial lifestyle and wealth management firm serving entrepreneurs, business owners, executives, and their families. Mike has 30-plus years of experience in the financial services industry and is committed to serving his clients through holistic financial planning, disciplined investment strategies, and proactive personal service. 

A native of Erie, Pennsylvania, Mike began his career in the financial services industry in 1988. He has earned the Chartered Retirement Planning CounselorSM (CRPC®) designation conferred by College for Financial Planning (188-LPL). Mike is also an active member of the Financial Services Institute (FSI) and Financial Planning Association (FPA).

When not working, Mike enjoys spending time with his wife, Amy, and their children. He volunteers in his community and at his church and his children's schools. An outdoors enthusiast, Mike loves hunting, fishing, golfing, and spending time near or on the water. He also enjoys working out and watching some of his favorite sports teams, the Pittsburgh Pirates and the Cleveland Browns. To learn more about Michael, connect with him on LinkedIn.

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(1) Assistant Secretary for Planning and Evaluation, 2019, April 3.