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If you’re a DIY investor, you’ve likely done a fantastic job accumulating assets and living within your means—two critical components of building wealth. However, even the most diligent DIY investors can fall prey to blind spots that cost them in higher fees, extra taxes, lower returns, or, worst of all, lost time (i.e. delaying retirement).
In this blog post, we’ll discuss five common mistakes I’ve seen DIY investors make after working with hundreds of clients over my career as a Certified Financial Planner (CFP®). My hope is that you can use this information to eliminate these blind spots from your own plan.
Just to be clear, this post is educational and should not be considered personalized financial advice.
My name is Jake Skelhorn, and I’m a Certified Financial Planner and co-founder of Spark Wealth Advisors. We're based in Jacksonville, Florida, but we help people across the country retire with confidence and clarity. If you find this post helpful, be sure to subscribe to our YouTube channel, like the video, and leave a comment with any questions.
We’re going to cover five mistakes in this post. Four of them are quantitative—meaning you can put a number on the potential savings or costs—while the last one is more on the emotional side. Stick around for that one, as it's something that catches many by surprise.
A common misconception is that once you hit 65 and become eligible for Medicare, your healthcare costs will be minimal. Unfortunately, that’s not the case.
According to a 2023 Fidelity study, a 65-year-old retiree can expect to spend an average of $157,000 on healthcare throughout retirement, in addition to Medicare costs. These expenses come in the form of co-pays, deductibles, and Medigap policies for costs not covered by Medicare.
Another often overlooked expense is long-term care. It’s estimated that 70% of people will need long-term care at some point in their life, which can be extremely expensive and isn’t covered by Medicare. Long-term care can be paid for with a reverse mortgage, self-funding with retirement savings, or by Medicaid if your income and assets are low enough to qualify by that point.
Our recommendation: Budget about $7,000 per year for healthcare expenses not covered by Medicare and set aside approximately $70,000 for the last two years of life if you plan to self-fund long-term care. Keep in mind that these numbers are in today’s dollars and will increase with inflation.
Tax planning is a forward-looking strategy to reduce your lifetime tax bill. It differs from tax filing, where your CPA helps you file taxes for the previous year. Tax planning, on the other hand, involves using the tax code to your advantage, resulting in more money for what’s important to you.
Examples of good tax planning include:
Why this matters: Proper tax planning can result in a six-figure difference in taxes paid over your lifetime. Having a clear strategy can help you keep more of your hard-earned money.
Sequence of returns risk is the risk of experiencing poor market returns in the early years of retirement. This can have a lasting effect on the success of your plan because, unlike during your working years, you may need to sell investments for income during a downturn.
Ways to mitigate this risk:
If the market takes a dive early in retirement, you can draw from the more stable, low-risk investments while waiting for the market to recover.
Check out my video on sequence of returns risk for a deeper dive into this topic.
Estate planning is a crucial part of your financial plan, whether you want your assets to go to your heirs or a charity. This involves keeping your will up to date, having a trust if appropriate, and ensuring your power of attorney documents are in place.
Key points to remember:
Real-life example: I recently read an article about a man who had over a million dollars in his 401(k) but had his ex-girlfriend from 30 years ago listed as his primary beneficiary. His surviving siblings were livid, but they couldn’t do anything because the beneficiary designation took precedence.
Many people focus on the financial aspects of retirement—how much they need to save, healthcare costs, and investment returns—but they often overlook the emotional side.
Two key emotional challenges:
These are just a few of the mistakes I’ve seen DIY investors make throughout my career as a financial planner. If you have others, feel free to leave a comment on the YouTube video to help others avoid them in the future.
If you’re looking for help with your own financial plan and retirement, reach out to us for a complimentary assessment. We’d love to have a free consultation to see if we’re a good fit to work together.
Thanks for reading, and we’ll see you in the next one!
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