Why Extreme Return Expectations, Vague Goals, and Politics Can Wreck Your Financial Plan

As a financial planner who has reviewed countless portfolios over the years, I've observed patterns that are deeply troubling. These patterns, or "red flags," are common among pre-retirees and retirees, and they often indicate a plan is headed for trouble. I'm going to break down the three biggest red flags I see in retirement portfolios and why they are so dangerous. You can watch my YouTube video on this topic here.

Red Flag 1: Unrealistic Return Expectations

I often hear clients say, "I want to earn the highest rate of return possible." This usually happens when their reality has not kept up with their expectations, forcing them to try and "make up the difference" through risky investing.

• The Profile: This scenario often afflicts highly successful people—the top 1% of their profession—who are used to taking decisive action and seeing immediate results. They may seek out advisors or salespeople who promise high, unrealistic returns.

• The Cycle: They pursue a high-risk investment, the expectation differs from reality, the investment blows up, and they repeat the cycle, trying to catch up.

• The Warning: This mentality is a sign that something has gone wrong on the spending or saving side. You should never be relying on exponential, high returns to make up for a shortfall, as that puts your entire retirement at risk.

Red Flag 2: The "I Can't Wait to Sit on a Beach" Goal

The phrase, "I can't wait to sit on a beach in retirement," paints a beautiful picture, but it creates a massive problem for planning. It's too vague, and often masks deeper issues of consumption.

• The Consumption Trap: People who have worked and sacrificed their whole career often feel it's time to "cut loose." They spend money in a bottomless pit, buying new cars, luxury items, and trips that deplete their capital faster than anticipated.

• The Financial Danger: This high spending leaves them with a dangerous decision:

  • Decrease Risk: If they decrease risk in their portfolio to protect the principal, the expected return may not keep up with inflation, jeopardizing their older self.

  • Keep the Risk: If they maintain high risk, they open themselves up to Sequence of Return Risk. If they spend heavily while the market takes a protracted dive, the portfolio may not recover, leaving them without the ability to work and earn money later in life.

Red Flag 3: Changing the Plan Due to Political Events

The most emotionally destructive mistake is making portfolio changes based on headlines and political events.

• The Non-Partisan Problem: I've seen clients who are Democrats and Republicans cause permanent, irreparable damage to their portfolios by making changes driven by election results, midterms, or policy news.

• The Emotional Indicator: This behavior stems from a state of panic. If you are sitting across from someone who is literally shaking with fear or breathing quickly (shortness of breath), that indicates they are making an emotional, rather than rational, decision.

• The Protection: Political events are often noise. Do not let your emotions override your written Investment Policy Statement (IPS). If you are highly impacted by political news, it's best to turn off the news, talk with a fiduciary advisor, and focus on the data, not the drama.

Conclusion: Don't Let Emotion Dictate Your Future

These three red flags—unrealistic expectations, vague consumption goals, and emotionally-driven market timing—are the main drivers of financial derailment in retirement. By being aware of these signs, you can dramatically increase your odds of protecting your wealth and achieving a calm, successful retirement.

At Barrett FP LLC, we offer expert financial planning on an hourly basis, focused entirely on helping you achieve your goals.

Learn more about how we can help you build an objective, data-driven investment plan.