Dangers of general financial advice

Financial Advisors


When it comes to financial advice, there are some pitfalls to avoid.

When someone who is about to retire has a low TSP balance and limited options for retirement funds, it is often because they received some “general” financial advice at some point in their career. I noticed something. .

This kind of advice comes from a variety of sources. Some of the most popular forms of general financial advice include online articles and blogs, colleagues and social media.

So where can you get reliable financial advice? Specifically, what kinds of financial advice can you get, and what financial advice should you avoid?

First, let’s take a look at some sources of potentially harmful advice, then let’s look at some things to look out for to help you reach your retirement goals.

Online Articles and Blogs

The Internet is a great resource for understanding the basics of how each of the funds that make up the TSP are structured. There are also articles by trusted financial experts who can give you an idea of ​​what the market forecast looks like.

However, we are unable to offer a plan that is specific to you and your investment horizon, taking into account your individual needs and goals.

I see many articles and blogs that disseminate information as if they know the future. COVID-19 was a perfect example of that. Everyone seemed to be saying, “Get out of the market!” This is the financial apocalypse! At first they seemed smart, but then the market quickly rebounded sharply.

There is no crystal ball, no single investment or investment philosophy that works for everyone at the same time.

colleague

This form of advice is one of the most common we come across, and for good reason. Of course, someone’s immediate sphere of influence influences their way of thinking. This problem is much like the problem of getting advice from articles on the Internet. Everyone’s situation is different.

For example, Susie did what her colleague told her to do and invested in the C and S funds because her TSP account was doing well, and then 2008 happened. What happened to his account? I’m sure you can guess.

But the big key here is that this colleague had a military pension, a large federal pension, social security, and his wife had a pension too, so he didn’t need the money from the TSP and was able to live with other people. I was able to ride out the storm comfortably. as well as investment.

What happened with Susie? She had a long FERS (Federal Employees’ Retirement System) career and still had a decent income from her pension, but she needed to receive a monthly distribution from the TSP to cover the monthly difference. She also planned to withdraw money from TSP once a year to go on vacation.

She was in a completely different financial situation than her colleagues. He didn’t need to withdraw from his TSP any time soon, so he could afford to be more aggressive with the TSP, whereas she needed to withdraw from the TSP in the near future. should have been more conservative in Pulling out of retirement assets when the market is down will lock in losses and deplete your TSP much faster, especially since she can’t contribute any more or get a match for an agency to retire. I meant that.

Others, on the other hand, have long careers in government but were told early on to put everything in the G Fund so they wouldn’t lose anything. They missed out on years of growth in the market that could positively impact their retirement.

Social media

There are many “gurus” on Facebook, Instagram, LinkedIn, etc. who have pages to guide people on allocating TSPs. These pages had some effect in getting the young civil servant with a long career to withdraw from her G fund, but she needed to start withdrawing from her TSP account immediately, and would soon retire. It can also be a problem for civil servants trying to do so.

These kinds of pages make blanket statements like “everyone should join a C, S, I fund” without considering anyone’s risk tolerance, investment horizon, retirement goals, etc. statements may be made.

A doctor told me, “Everyone turning 60 should start taking high blood pressure and high cholesterol medications and take insulin, because they are more likely to have diabetes when they turn 60.” Can you imagine posting that? I am over 60 years old. ” You may not be diabetic and, if you followed their advice, you could be taking a ton of medication for a disease you don’t have.

It sounds like a funny metaphor, and maybe a little silly, but it’s like saying, “People over 60 should be 100% in the G fund” or “Everyone should be 80% in the C fund.” as ridiculous as Each person’s financial situation is as individual as a medical diagnosis.

what to do and where to go

One of the first steps to take when considering how to invest for your particular situation is to consider your investment horizon or timeline (when you may need to access the funds). That makes a huge difference in how you invest.

Risk tolerance is also a big issue. Can you afford big losses?

Another consideration is your retirement goals. What is the goal of retirement? Is it to leave for beneficiaries? Is it for extra income? Is it a “rainy day” fund? When considering your goals, try to block out external noise such as the aforementioned sources, relatives and neighbors.

So who do you need advice from and what do you need to look for to find the right person to mentor you?

I believe every federal employee should have two relationships that help with retirement planning.

The first relationship is establishing a connection with someone in your benefits or human resources department. Before you say, “I don’t know the HR person because the area is small,” or “I can’t get in touch with those people,” there’s a welfare department somewhere, and it’s better to look for talent early. I guess. and build better relationships. Find out who they are and how to contact them. If you have a good relationship with your benefits department or HR, it will be much easier to get information later when you need to apply for leave or ask questions about benefits. increase.

A second relationship that can help you plan your retirement is having a good financial advisor familiar with the federal retirement system. You can easily tell if they know the federal system by asking questions like, “When can I get my FERS pension?” If they don’t, it can be a red flag that they don’t know how the government retirement system works.

Another great question is “What are the 5 funds available on TSP?” These are basic questions that your federal adviser should be able to answer easily.

Not only should financial advisors be familiar with the federal system, they must also be “fiduciaries.” A fiduciary is someone who puts your needs before their own and acts in your best interests.

Make sure they are trustworthy people, whether you ask them or they are listed on the website. Familiarize yourself with the federal system and work with those who are trustees. Even good ethical financial advisors who don’t know the federal system don’t know what federal retirees were doing in connection with the TSP and FERS system, putting them in irreversible condition. because it can get you down.

Another thing to watch out for when working with a financial advisor is to make sure they ask your goals.

Before they make plans for you, you need to know a few important things. They will ask you how much you will earn in retirement, what sources of income (pensions, social security, spouse income, etc.) I need to know if it’s enough to maintain my quality of life.

What do you want or need your TSP to achieve when you retire? Will your TSP need to supplement your income or will it be sustainable for the foreseeable future? Do you plan to move when you repay?

These are some of the questions you should ask your advisor to ensure that a plan is put together for you. Then, based on your information, we can create a financial plan specific to you and your goals.

An advisor who tries to move your TSP and other retirement assets right away without first asking what your retirement goals are is a red flag. Be sure to work with an advisor, not just a “salesman”. Over the years I’ve heard people say, “I spoke to people who just wanted to roll up the TSP without asking me any questions.” Note that in many cases it makes sense to stay with the TSP. It all depends on your specific goals.

Consider your specific needs first

In summary, don’t blindly follow general financial advice. If you’re researching and accountable for federal retirement, that’s great. I applaud that and it’s healthy. Make sure you structure all the information you receive around your personal goals, not what someone who doesn’t know your financial situation thinks you should do.

If you take the time to connect with your benefits advocates and talk to your financial advisor, make sure you’re asking about specific goals and that you’re familiar with the federal retirement system.

Steven Puckett is co-owner of FedWise Retirement Planners and co-host of the FedSmart podcast. He conducts webinars, seminars, his one-on-one interviews with federal employees across the country, and has thousands of followers on his social media that keeps him up to date on retirement plans.

Disclosure: Advisory services provided through investment advisor CreativeOne Securities, LLC. FedWise Retirement Planners and CreativeOne Securities, LLC are not affiliated. Address: 26370 N 98th Ave Peoria, AZ 85383.

© 2023 Stephen Puckett. all rights reserved. This article may not be reproduced without the express written consent of Steven Puckett.



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