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7 Things Your Financial Planning Is Probably Missing

One of the most common questions I get when doing personal coaching sessions is “what am I missing?” People often don’t know what to ask. Here are the most common holes I see in people’s financial situations:

1) Not having enough emergency savings. You’d be surprised by how many people have high incomes, expensive homes, large retirement account balances and yet little or no cash savings in case of an emergency. Perhaps it’s because the savings aren’t automatic like in a 401(k). However, you can just set up an automatic monthly transfer from your checking account into a savings account for emergencies. You may be surprised by how quickly it builds up to the recommended 3-6 months’ worth of necessary expenses.


If you’re worried about sacrificing retirement savings to save for emergencies, consider making that automatic transfer into a Roth IRA since the contributions can be withdrawn tax and penalty-free anytime and the earnings can be withdrawn tax and penalty-free after 5 years and age 59 ½. (Be aware that earnings may be subject to taxes and a 10% penalty if withdrawn before 5 years and age 59 ½, but the contributions come out first.) You can keep the Roth IRA in cash like a savings account or money market fund until you accumulate enough emergency savings outside and then invest the Roth IRA more aggressively to grow tax-free for retirement. In the meantime, having to fill out an IRA withdrawal form can deter you from dipping into it frivolously on non-emergency expenses.

Some people also hate earning so little on that money, especially with interest rates on savings accounts still near zero. If you have excess savings, you might consider I Bonds, which are currently paying 9.62%. Just be aware that you can’t cash them in the first 12 months, so you want to have sufficient emergency funds somewhere else until you’re past those 12 months. The interest rate also adjusts every 6 months based on inflation so they’re unlikely to continue paying that much indefinitely.

If you have an overfunded emergency fund, there’s a case for keeping your emergency funds invested in a conservatively diversified portfolio for higher returns in the long run. Just be aware that if your emergency fund is the ability to borrow from your employer’s retirement plan, you could be stuck with taxes and a 10% penalty on the outstanding loan balance should you leave or lose your job and not be able to repay the loan. When you consider that unemployment is one of the main reasons for even having an emergency fund, that might not be such a great idea.


2) Having too much in company stock. This usually comes about by accumulating company stock in incentive or employee stock purchase plans combined with inertia. The problem is that it’s one of the most dangerous investing moves you can make since if anything were to happen to your employer, you could lose your job and a good portion of your nest egg at the same time. No company is immune from that risk no matter how much you believe in it. That’s why an investment adviser can lose their license for recommending having too much in any one stock.

If you have more than 10-15% of your overall portfolio in any one stock, you may want to start paring it down immediately. Yes, you may have to pay some taxes or take a loss but those downsides pale compared to the potential risk. If you want to maintain some company stock, it’s probably best to do so in your retirement plan since the growth can be taxed at lower long term capital gains rates if you withdraw the shares in-kind before selling them versus higher ordinary tax rates if you sell them and reinvest the money in something else before withdrawing it. This “net unrealized appreciation” strategy can be complex, and the IRS rules must be followed precisely so consult with an experienced tax professional before moving your retirement plan funds.

3) Not having an asset allocation plan. Asset allocation is considered the most important factor in determining the risk and return of your investments. Yet people often have a hodgepodge of accounts with randomly selected mutual funds. The problem here is that you can be under-diversified with 10 funds that all invest in the same type of investment or have one perfectly balanced asset allocation fund that is thrown off balance by adding another fund that is too conservative or aggressive.


You’ll want to either make sure each account is properly diversified or look at your accounts as one (or actually consolidate them). The latter approach can also help minimize your taxes if you have a taxable account and prioritize your tax-sheltered accounts for investments that generate the most taxes like high-yield bonds, REITs, and high turnover mutual funds. For retirement accounts, you can simplify your life by consolidating them into your current employer’s plan and/or an IRA unless one of those accounts offers a special investment option that you want and can’t purchase elsewhere. If you don’t know how to create and manage an asset allocation strategy, you can follow a portfolio model or use a robo-advisor or investment professional.

4) Paying too much in investment fees. Many people have no idea how much they’re paying in fees on their investments or even that they’re paying anything at all. I can’t tell you how many people have thought the only fee was a $30 annual maintenance fee on their statement. The real costs are more hidden in the form of mutual fund loads, expense ratios, and trading costs plus advisory fees that can all add up to several percentage points a year in lost returns.

That would be okay if those higher fees generated higher returns but there’s a lot of evidence that paying for active management just isn’t worth it. Instead of paying high management fees, consider passive index funds, which have been shown to beat the vast majority of the more expensive actively managed funds. Even those active funds that do outperform over a given time period have generally not been able to replicate that in the future. Perhaps that’s why index funds have been recommended by legendary investor Warren Buffett.


5) Not running a retirement calculation. Are you saving enough? Many people seem to base whether they’re on track for retirement by how much they’re saving (I’m maxing out my retirement plan so I must be okay) or how much they’ve already accumulated (looks like a lot to me), but some people need a lot more than others to retire. The number depends on your time frame, income needs, and how much you’ll get from Social Security and other income sources. That’s why the best way to know if you’re saving enough is to run the numbers on a calculator like this.

6) Not considering long-term care. Some people make a conscious decision not to purchase long-term care insurance. The problem is when someone thinks Medicare will cover it (it won’t) or just doesn’t want to think about it at all. Medicaid covers long-term care costs, but you have to spend down practically all of your assets to qualify. As a result, you can do everything right in terms of saving and investing for retirement and see it all wiped away with a few years of long-term care costs.

Long-term care insurance can help protect your assets while providing more choices than Medicaid. It’s generally recommended for people in their 50s to early 60s. Buy it too early and you can be paying for premiums for a long time before you need it. Wait too long and it can be a lot more expensive, or you may not even qualify if your health deteriorates.


You may also want to see if your state offers a long term care partnership program since purchasing a program in one of these plans offers additional asset protection even if you use up all the insurance benefits. With one of these plans, you can purchase just enough insurance to CYA – cover your assets. In any case, be sure to have a plan that goes beyond hoping you’ll never need it (especially since it’s estimated that 70% of those turning age 65 will need some form of long-term care.)

7) Lack of estate planning. Almost everyone understands the need for a will and other basic estate planning documents and yet very few have actually put them in place. It may not feel urgent now, but you never know when you and your family will need them and by then, it will be too late. Family members may stress and even fight over key health care decisions even as they are powerless to manage your finances if you’re incapacitated. Your death could leave decisions about who inherits your property and takes care of your minor children in the hands of the court and stick your heirs with unnecessary probate costs and taxes.

You can draft and store an advance health care directive for free at MyDirectives. Other basic documents like a will and durable power of attorney can be for free on sites like FreeWill, Fabric, and DoYourOwnWill.com and there are ways to avoid probate on many of your assets (depending on your state) without a trust. But if your financial or family situation is more complex, you may want to hire a qualified estate planning attorney.


Recognize any of those mistakes in your financial life? Consider consulting a qualified financial professional. Then see what they say when you ask “what am I missing?”