When they retire, most federal and postal workers are better off than their private sector peers. Retirement benefits are linked to inflation (a perk unknown in the private sector) and health insurance is for life. Some of the recent private sector buyouts required employees to find their own health insurance. Many, if not most, private company 401(k) plans do not have make any kind of matching contributions to employee accounts.

6. Overlooking the impact of changes in tax law and issues of tax efficiency. There are few areas as poorly understood by the general public as tax law. Partly, this is because there are so many laws regarding taxation, but it is also because the law is constantly changing. Since 2000, federal legislation has drastically modified marginal and capital gain rates, tax treatment of dividends, IRA distribution rules, and estate and gift tax rates. To complicate matters, much of this legislation is set to expire in 2011. Failing to consider tax law changes could render an investment plan ineffective, while taking advantage of tax law could save you a substantial sum. It is also important to consider tax-efficient planning-not only for yourself, but for your heirs, too. There are a variety of strategies that can ease the tax burden on your beneficiaries, and you may consider the possibilities of a charitable gift, an annuity, a charitable remainder trust, or a private foundation.
7. Mistaking diversification for asset allocation. Some people believe that the key to investing lies in owning a variety of assets. They focus on quantity of positions, claiming that by holding 10 stocks, they hold a “diversified” portfolio. This statement, while to some degree accurate, hardly protects them from the market’s fluctuations. Why not? The reason can be found in the distinction between diversification and asset allocation. While diversification merely mandates distributing assets across a number of investment vehicles, asset allocation requires that the investments are spread across a variety of asset classes, some of which have low correlations to each other. By investing in large, medium, and small companies; by holding bonds, real estate, and cash; by owning international assets; and by investing in both the growth and value style boxes, you can capture all of the market’s upswings while gaining solid downside protection.
8. Allowing yourself to be influenced by the media. It is a known fact that the market always overreacts. Bullish news sends it soaring, and bearish news exacerbates bad times. More than any other factor, media commentary can escalate bubbles and trigger sell-offs. The long-term investor (with a time horizon of more than one year) knows that today’s hot IPO according to MSNBC has a good chance of losing value over the next five years. Intelligent investors cannot be influenced by the banter of talking heads. Markets experience cycles, and you cannot escape the ups and downs through hyperactive trading in response to the word on the street.
9. Underestimating your financial needs. Before meeting with a wealth management specialist, investors often believe that their retirement needs are met. Despite their own confidence, many of these individuals are completely unprepared for the future, and lack any semblance of a clear financial plan. Unaware of the various insurance and investment products specifically designed for retirees, unfamiliar with tax laws and asset allocation theories, and unqualified to act as their own distribution specialist, these investors often find themselves in difficult situations. You might be a superstar at your job, but you are probably ill-equipped to formulate a retirement plan for you and your family. For financial security in retirement, seek professional guidance.
10. Not getting an annual financial checkup during retirement. The world is constantly changing. Tax laws are modified, new products are introduced, and personal circumstances and goals can shift. As all of these things happen, it is necessary to monitor your investments, review your distribution plan, and discuss your life. Your portfolio may need to be rebalanced, and your risk tolerance may need to be reevaluated. For all of these reasons, it is critical that you meet with a retirement wealth manager – at least Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser.annually – so that you can sleep soundly and enjoy your retirement years. John Bernards

John, by the way, is a Certified Financial Planner™ and a Chartered Federal Employee Benefits Consultant. He is a founding partner of The Harvey Group. You can reach him at (703) 549-5488 or email john@steveharveyllc.com.

And to reach me, you can email: mcausey@federalnewsradio.com

Nearly Useless Factoid

They sure know how to party! Among the contests at this year’s Iowa State Fair are the Decorated Diaper, the Marble Shoot, the Outhouse Races and the Senior Spelldown. While there aren’t any spelling lists available ahead of the contest, I bet we can come up with some words. For example, I sometimes have trouble with “amortization.”

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