Over the years as a financial advisor, I’ve had the pleasure of meeting with hundreds of clients who are employees in various companies and industries. I’ve witnessed a range of mistakes that can derail the best-laid plans, and even the most diligent among us can fall prey to common financial mistakes.
In this article, I share the top financial mistakes I see employees make and provide insights on how to avoid them. Whether you’re just starting your financial journey or looking to refine your strategy, understanding these pitfalls can help you make more informed decisions as you pursue your long-term goals during your working years.
1. Failing to Save Enough to Retire
If you’ve earned a healthy salary over the years, you’ve likely created a lifestyle that’s costly to maintain. With lifestyle creep, early career debt, and delayed retirement planning, it’s very common for employees to be behind the curve when it comes to retirement savings, even in situations where you may have a high-earning potential.
Though Social Security retirement benefits make up the bulk of retirement income for many, they likely won’t make much of a dent in your retirement living expenses, especially if you are earning above the maximum annual wage limit of $168,600. It’s crucial for employees to determine how much they have saved and how that might stack up against anticipated retirement expenses.
A qualified financial professional can help you find ways to improve your retirement savings plan, whether through increased contributions to your employer retirement plan, HSAs, and taxable investment accounts, or exploring deferred compensation options. A financial professional can also help you determine whether your current spending is compatible with the lifestyle you would like to maintain in retirement, and whether you need to make cuts in some areas. Taking these steps while you still have time to make adjustments can make your financial situation in retirement much more comfortable.
2. Too Much or Too Little Risk in Their Portfolio
Another common financial mistake I see clients and employees make is taking on too much risk by holding on to company stock for too long.
On the flip side, I’ve seen clients approaching retirement and becoming ultra-conservative. If you retire at age 65, you could need your money to last 30-plus years. If you become too conservative too soon, you risk running out of money in retirement.
Here’s an analogy to put this financial mistake into perspective. Not having the right balance of risk and stability in your portfolio is like building a bridge with steel beams and wood. If you build the bridge exclusively with steel beams (low-risk portfolio), while safe, it limits potential for growth and expansion. If you build the bridge exclusively with wood (high-risk portfolio), it’s cheaper and quicker to build, but it exposes you to potential negative consequences.
Building a bridge with the right balance of steel and wood is just like having a well-diversified portfolio that provides the potential for growth while simultaneously managing downside risk.
3. Not Having a Comprehensive Estate Plan
Estate planning is an essential aspect of holistic wealth management, especially if you want to pass assets to the next generation. Remember, estate planning isn’t about you, it’s about your heirs.
If you’re okay with the government making estate-planning decisions about your hard-earned money, a default estate plan might be the right option for you. But if you want to feel confident that what you’ve built over your lifetime is passed on according to your wishes, while helping reduce taxes, and probate expenses, then customized trusts and other comprehensive estate documents are your wise choice.
Are You Making These Common Mistakes?
If you’re an employee at a company and these mistakes sound familiar, don’t worry! It’s never too late to start moving in the right direction. At GLH&C Financial Services, my team and I have decades of experience helping individuals and employees as they pursue financial independence. I can assist you in staying on track to meet your retirement goals.
Email me at jim@glhcfinancial.com or call 916-967-3208 to see how I can help you work toward your ideal financial future.
About Jim
James Callens is a financial advisor at GLH&C Financial Services, a full-service, comprehensive wealth management firm. Jim has over 30 years of experience in the financial industry and uses his extensive resources and knowledge to help his clients experience simplicity and clarity in their financial lives. Jim spent more than 20 years working for GE Financial Advisors, both in its insurance services department and as a regional manager and financial advisor. He took part in GE’s Six Sigma Quality Training program and completed the National Association of Life Underwriter’s four-year LUTCF course. Jim also earned his certificate in financial planning from the University of California at Davis. In 2011, Jim combined his own firm, Callens Financial Group, with GLH Financial Services, creating GLH&C Financial Services, so he could provide even more value to his clients.
Jim lives in Folsom, California, with his wife, Melissa, and his four children, Jacob, Kristen, Grant, and Andrew. Together, they enjoy outdoor activities like kayaking, bicycling, and vacationing at Lake Tahoe. To learn more about Jim, connect with him on LinkedIn.