"The biggest thing that makes me shake my head as a financial advisor is seeing a big purchase during the first few months of retirement."
Leanne Kampeter CFP ®
Senior Vice President & Financial Advisor, LPL
If I were asked, “what do you see as a financial advisor that makes you shake your head”? I would have to say it’s that big purchase within the first few months of retiring and taking a large lump sum from your retirement account right away.
Picture it – retirement in May with a 401k/IRA balance of $300,000. A few months go by and restlessness sets in and you decide that you are going to remodel your kitchen. You’ve been batting around the idea for a few years and now seems like the time. However, you haven’t saved for this big expense and of course it’s an expensive proposition. The bid you are given is $40,000 but of course there are “overruns” and unexpected issues that your contractor run into…now that expense is $50,000.
Where do a lot of people turn? Their retirement accounts!
As an advisor, I think of the amount of time it took that retiree to diligently save that $50,000 from each paycheck to accumulate that balance and now it’s gone in 1 felt swoop – it makes me sad. Because often these lump sum distributions were from pre-tax sources, the retiree also faces taxes on this distribution….meaning more than $50,000 is taken from the retirement account to net $50,000.
Now that retirement account balance is down more than 15% and there is so much more pressure on the remaining balance with many more years of retirement in front of that retiree for “regular” monthly expenses.
I think with better planning prior to retirement, this retiree could have avoided this situation and be able to enjoy retirement in future years with less anxiety.
Category: Wealth Planning
